Business Taxes in Texas

Does the state tax my business income, and where?

Texas does not levy a personal income tax, so pass-through income from a sole proprietorship, partnership, S-corporation, or LLC is not taxed by the state at the owner level. That makes pass-through structures efficient in Texas, and it means owners moving from an income-tax state often overstate what they will owe here.

What Texas does impose is a franchise tax, often called the margin tax, on taxable entities such as LLCs and corporations. It is calculated on a measure of the entity's margin rather than on individual income, and it applies to entities whose revenue exceeds a state threshold. Businesses below that threshold generally owe no franchise tax but still have a reporting duty. There is no local income tax, though cities and counties do levy sales tax on top of the state rate and assess property tax, which for many businesses is the larger local cost.

Is a pass-through entity tax election available, and when is the deadline?

Texas offers no pass-through entity tax election, and the reason is structural rather than an oversight. A pass-through entity tax exists to restore a federal deduction for state income tax paid at the owner level, but Texas has no personal income tax, so there is no owner-level state income tax to shift to the entity. The franchise tax is an entity-level tax already, but it is not an elective workaround for an individual income tax and does not function as one. There is no election to make and no deadline to track on this point. Owners who also operate in states that tax individual income may still use those states' elections for income sourced there.

When does an out-of-state seller owe sales tax here?

An out-of-state seller can owe Texas sales or use tax without a physical presence in the state. Under the economic nexus standard that followed Wayfair, a remote seller whose Texas sales exceed the state's threshold over the measurement period must register and collect on taxable sales to Texas customers. Texas is also notable because it taxes a range of services that many other states leave untaxed, so sellers of services, not just goods, can have a collection obligation they did not anticipate. Physical presence such as employees, inventory, or a location still creates nexus, and marketplace facilitators generally collect for sellers on their platforms.

What deadlines differ from the federal calendar?

The Texas date that owners most often overlook is the annual franchise tax report, which is due on the state's schedule and must be filed even by entities that owe no tax because they fall below the revenue threshold. Skipping it because nothing is due can put the entity's right to do business in the state at risk. That report also serves the state's public information or ownership reporting requirement, which keeps the entity in good standing. Sales and use tax is filed on a recurring cycle set by the state based on collection volume. None of these dates depend on the federal income tax calendar, and there is no state individual income tax return to file at all.

What do owners in this state most often get wrong?

The most common Texas mistake is assuming that no franchise tax due means no franchise report to file; the report is required even when no tax is owed, and skipping it endangers the entity's standing. A close second is service sellers not realizing Texas taxes many services, so they fail to register and collect. Remote sellers also underestimate how readily economic nexus applies. The absence of a personal income tax leads some owners to assume Texas has almost no business compliance, when the franchise report, sales tax, and property tax all still demand attention.