Pay Your Texas Small Business Taxes

Staying legally compliant with Texas state taxes is central to operating your small business and giving it the best chance to prosper. One of the most important compliance tasks a Texas small business owner will face during their lifetime is paying taxes. Knowing exactly which state taxes apply to your business can be stressful for even experienced business owners. But don’t worry — we’re here to help. This guide to Texas small business taxes will give you an overview of the types of taxes you might need to pay and how and when to pay them.

If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses.

Step 1: Establish your Texas business’s income tax obligations

Most states make businesses pay an income tax on their profits, but Texas does things differently. Instead of an income tax, Texas charges businesses a franchise tax, which is based on a taxable entity’s margin.

Do you have to pay the franchise tax?

• If your business makes $2.47 million or less per year, you don’t have to pay the franchise tax.
• But even if you don’t owe any tax, you still have to file a report every year:
  • If your business is a corporation or LLC, you file a Public Information Report (PIR).
  • If your business is a partnership or another type of entity, you file an Ownership Information Report (OIR).

If you owe the franchise tax, here’s how it works:

• Texas gives you two ways to calculate the tax:
  1. E-Z Computation Method – You pay 0.331% on all the money your business makes. This is the easiest way, but you can’t claim certain deductions.
  2. Standard Method – You pay a lower tax rate (either 0.75% or 0.375%, depending on your type of business), and you can deduct certain expenses:
     • 0.75% tax rate applies to most businesses, including service providers, manufacturers, and other industries that are not involved in retail or wholesale trade.
     • 0.375% tax rate applies to businesses that primarily sell goods, such as retail stores and wholesalers.
     • When using this method, you can choose to deduct one of the following:
       • 70% of your total revenue (leaving only 30% taxable), or
       • The cost of the goods you sell, or
       • The wages and salaries you pay employees

The tax deadline is May 15 every year unless it falls on a weekend or holiday, in which case it’s due the next business day.

What if you own an LLC?

Some business owners choose LLCs or other “pass-through” businesses to avoid corporate taxes, but in Texas, it doesn’t really matter from a state income tax perspective because:

1. Texas doesn’t have a corporate income tax, so businesses don’t pay state income tax on profits.
2. Texas doesn’t have a personal income tax, so business owners don’t pay state income tax on the money they take home.

However, federal income taxes are the same as with any state, meaning that your LLC will still have pass-through taxation at the federal level (unless you choose to be taxed as a C corporation). And, of course, LLCs have limited liability protection for the owners, which is a major advantage over unregistered businesses like sole proprietorships and partnerships.

For these reasons, calculating your small business’s taxes is a little different in Texas than in other states.

Step 2: Determine your Texas business’s employment taxes

Largely because Texas has no personal income tax, there is no withholding tax. In addition, there is no alternative payroll tax. Accordingly, your only obligations for withholding are for federal taxes and also Texas unemployment insurance. 

Step 3: Establish your Texas business’s additional state tax obligations

At this point, you’ve probably figured out that Texas has minimal tax obligations for businesses. There is no corporate state income tax, and there is no employment or payroll tax at the state level. However, Texas does have several of the other “smaller” state business taxes. 

Sales Tax

To start, Texas has a state sales tax. As of 2021, the base rate is 6.25%, which is then adjusted upward by local municipalities to a maximum combined rate of 8.25%. Check with the city or county in which your business operates to get the correct sales tax rate. In addition, your business will be informed by mail whether you’re required to file quarterly or monthly, which makes tracking your expenses and receipts incredibly important.  

For monthly filers, tax returns and payments are due on or before the 20th day of the month following the reporting month. For example, the sales tax report for January is due by February 20. For quarterly filers, tax returns and payments are due on or before the 20th day of the month following the end of the quarter.

Privilege/Franchise Tax

After the sales tax comes the privilege tax (also known as a franchise tax). As discussed above, Texas has a gross receipts tax called the franchise tax. A privilege tax, in its classic form, is a tax on businesses for the privilege of doing business in a state. The state doesn’t have a privilege tax and has used the franchise tax term for its unusual corporate tax structure.

Unemployment Tax

Texas has an unemployment insurance tax. State businesses are required to file and pay unemployment insurance taxes on the first $9,000 of each employee’s wages. The range of the tax rate is 0.25% to 6.25% with an average of 1.42%. These tax rates are subject to change, but they’re accurate as of February 2025. Quarterly wage reports and tax payments are due by the last day of the month following the end of each calendar quarter.

Excise Tax

To supplement its unusual business tax structure, Texas has a rather robust excise tax system. It taxes wholesalers and retailers of fuel, cigarettes, and alcohol. Unlike a sales tax, which is levied upon the value of the sale to the consumer, excise taxes are levied on the seller based on a flat rate per unit. If your business engages in the wholesale or retail of goods subject to excise taxes, or if you’re unsure, consult the Texas Comptroller and review their website to see what various categories are subject to excise taxes.  

Step 4: Prepare to file and pay your Texas business taxes

Other than the unemployment insurance tax, you can pay all your business taxes with the Texas Comptroller. Keeping with the philosophy that timely compliance with your business’s tax obligations will help its long-term growth and stability, we encourage you to establish an online account with the Texas Comptroller. To pay your unemployment insurance tax, you can create an account with the Texas Workforce Commission and pay online or by mail. 

A natural complement to good tax compliance is good recordkeeping. To properly file and pay your Texas small business taxes, it’s important to keep complete and thorough business records.  Such records include:

• Customer accounts receivable
• Vendor accounts payable
• Expense receipts (for example, gas, vehicle repair, office supplies, etc.)
• Rent or mortgage payments
• Insurance premiums
• Payroll

While this list isn’t complete, it will give you a good start on building a thorough set of business tax records. We can also help you efficiently and accurately gather all this information. Take a look at how we can streamline your recordkeeping and money management obligations with the ZenBusiness Money Pro app. 

Do I need an accountant?

When running a small business, every penny counts. Deciding whether to hire professional services can be extremely difficult because of the cost and your natural disposition as a go-getter. 

But sometimes, the wisest move is to recognize your limits and let a specialist take over. In that regard, a tax professional can be an asset to your business. Tax professionals can not only help you comply and file your taxes properly, but they can also give advice as to the timing of the sale of assets, how and when to hire employees, and what tax elections to take to reduce your business’s tax footprint. In addition, check out the IRS’s website, which has a guide to tax preparer qualifications and certifications.

Not sure how to stay compliant? Learn more about legal compliance for small business owners.

How We Can Help

From formation and beyond, we can help you stay ahead of your Texas small business’s tax needs, even at tax time. With our ZenBusiness Money Pro app, you can easily send custom invoices, track deductions, and accept credit card and bank transfer payments from a simple and easy-to-use dashboard.

If your business is still in the formation phase, our Texas LLC or corporation formation services can help you get started.

No matter where you are in your business’s lifecycle, we have the tools and services to support you.