LLC C CorpFor Texas owners

The cursor is hovering over two boxes, and the screen in the other tab is a Texas formation page. That second screen is quiet about tax. It asks for a name, an organizer, and an agent. It does not say that a company formed in Texas, or a company that starts doing business in Texas, picks up a yearly report to the Comptroller. We read that report with you before the cursor comes down.

If you live outside Dallas and Fort Worth, we are all Texans, and that is the whole claim. We have not opened a room in your town, and we will not talk as if we had. You stay where you are. We stay in Dallas. The call is a video call, the books are shared, and the close falls on the same day either way.

The certificate is a state paper

Tick the LLC box in Texas and the paper that follows is a certificate of formation at the Secretary of State. The instructions on that certificate list a filing fee of 300 dollars. One organizer can carry it. That organizer is either a person who has turned 18, or some other entity, and a Texas home is not required of either one. The organizer's signature is what the form wants. A notary stamp is not on the form.

Someone has to agree, in advance, to accept legal papers for the new company. The certificate calls that person or that entity the registered agent. A living person can take the job only by living in Texas. An entity can take the job only if it is already on the state's register of entities that do business here. The new company is not allowed to appoint itself. Consent is signed, and the signed copy stays out of the filing packet. The registered office has to be a street address where a person can hand papers over during the business day. A mailbox with nobody there to take the papers does not qualify.

From the first day of 2022 that same certificate also has to name an initial mailing address. Tax mail from the Comptroller goes to that address. Move the agent later, or move the office, and the update is a Secretary of State filing. The franchise report is the wrong form for either change. The certificate instructions warn that a lapsed agent or a lapsed office can lead to involuntary termination. We set that warning next to the May date so year two is not the first time you hear it.

A corporation uses a different certificate. The tax life that follows a corporate box is on the page about Form 1120. The Texas point is narrower. Forming either kind of company is what brings the franchise filing into an owner's year. A person who never forms a company, and who simply works under their own name, is generally outside that filing.

Who the Comptroller expects

The Comptroller describes the franchise tax as a privilege tax on each taxable entity formed in Texas or doing business in Texas. Publication 98-806 puts corporations on that list, and limited liability companies too, including a company with one owner and a series company. Also named on that list: banks, then S corporations, partnerships, trusts, professional associations, joint ventures, plus any further legal entity the publication adds.

The same publication names who stays off the report and off the tax. A person working under their own name, with no company, stays off, unless that person also owns a single member limited liability company, which pulls the activity back on. A general partnership stays off when every partner is a natural person, unless the partnership is a limited liability partnership, which pulls it back on. An entity the Tax Code exempts stays off. Certain unincorporated passive entities stay off. Whatever else the publication lists, we read with the certificate in hand rather than trimming it on this page.

Ask what 'doing business in Texas' covers and publication 98-806 points you at Rule 3.586 for the examples. We leave those examples as examples. We do not compress them into a motto. Form the company in Texas and the report is already in the year, even if every customer is still in another state. Form it somewhere else and then start operating here, and the same report can show up. The trigger is what the company does here, not where the envelope is mailed. We match it to the rule. A postal code is not the test.

Margin, said as four paths

When tax is actually owed, the computation sits on margin, unless the company qualifies for the EZ computation and chooses it. Path one leaves 70 percent of total revenue inside the margin. Path two starts from total revenue and removes the cost of goods sold. Path three removes compensation instead. Path four removes 1 million dollars, and that removal has been available since the first day of 2014. The revenue number begins with the amounts on the federal return, and Tax Code section 171.1011 is the list of what comes back out.

In the ordinary case, cost of goods sold means what it cost to acquire or produce the tangible personal property, or the real property, that the company sells in the ordinary course. Sell nothing but services and that path is often closed. A few trades have exceptions, and those exceptions live in section 171.1012. We read them from the statute, not from a habit.

Wages reported on a W-2 count on the compensation path, and so does cash that went to officers, to directors, to owners, to partners, and to employees. Net distributive income paid to a natural person can be counted too, up to a cap for that person. Deductible benefits can be counted, the ones the publication names, such as workers compensation, health care, and retirement. Pay a contractor on a 1099 and that payment stays out of the subtraction. Employer payroll tax paid by the company is left out of that subtraction as well. Whatever margin is left is apportioned to Texas using gross receipts. If several companies file as one combined group, every member has to walk the same path.

The 2026 and 2027 row, kept separate

Report years 2026 and 2027 share one no tax due line, and that line is 2,650,000 dollars of revenue. Stay on that line or under it and franchise tax is zero, so the long tax report stays off the calendar. 0.375 percent is the rate this row gives to retail and to wholesale. 0.75 percent is the rate this row gives to every other line of business. Compensation subtracted for one person stops at 480,000 dollars. EZ is available when an entity, or a combined group, has annualized total revenue of 20 million dollars or less, and the EZ rate is 0.331 percent. Pick EZ and the margin deductions are given up. The long form is the one you file when revenue sits over the line and EZ is not the choice, or when a margin deduction is the point of the filing.

Report years 2024 and 2025 are a separate row. They do not borrow numbers from the paragraph above. On the earlier row the no tax due line is 2,470,000 dollars, and the compensation cap is 450,000 dollars. The Comptroller's page shows the same rates, and the same EZ revenue line, as the later years. You describe the row for the report year you are actually filing. A 2024 dollar does not get to sit inside a 2026 sentence on our watch.

The short report still goes in

Beginning with report year 2024, revenue at or under the no tax due line means you skip the old no tax due information return. You do not skip the short report. That short report is either a public information report or an ownership information report, unless the Comptroller's skip list names you. The public information report is Form 05-102. It is the form for each corporation, each limited liability company, each limited partnership, each professional association, and each financial institution that is organized in Texas or that has nexus in Texas. An officer can complete it and sign it. So can a director, or another person the company has authorized.

Everyone else who is a taxable entity, with Texas organization or with Texas nexus, uses Form 05-167. That form is the ownership information report. What it says about ownership is confidential. A combined group does not file one short report for the whole group. Each member that is organized in Texas, or that has nexus, files its own. The due date is the same day as the franchise report, and the short report is still due in a year when revenue sits under the line.

The skip list on that page, drawn the way the page draws it, covers exempt entities, entities with neither Texas organization nor Texas nexus, passive entities, and qualifying new veteran owned businesses through their first five years. Miss that list and the short report is not optional. The warning names four Tax Code sections in this order: 171.251, then 171.2515, then 171.252, then 171.255. Forfeiture can take away the right to sue, and the right to defend, in a Texas court. It can also put certain debts on the officers, the directors, the partners, the members, or the owners personally. Sections 171.259 and 171.260 keep financial institutions clear of that forfeiture.

That is the fear worth naming. The formation screen feels finished when the certificate comes back. A year later the short report is what keeps the company able to stand in a Texas court. We would rather say that on this page than have an owner learn it from a forfeiture notice.

Change an officer after you have filed, and the change waits for the next annual report, unless you amend for an error or for a critical need. Changing the registered agent is not a line on either short report. That change goes to the Secretary of State, which the certificate section already said.

May 15, and what late costs

May 15 is the annual report's day. Land that day on a weekend or a holiday and you have until the following business day. We put May 15 on the same list as the federal return. For a calendar year corporation that federal day is the 15th day of the fourth month. Any sales tax date the company actually has goes on the same list. Whichever state issued the certificate, the federal day stays where it is. May 15 stays where it is when the federal day moves.

Miss the day with a report and the penalty is 50 dollars for that report. The 5 percent penalty covers a payment that arrives after the due day and before day 31. From day 31 onward the penalty on the tax becomes 10 percent. The due date itself carries no interest. Interest waits until 61 days have gone by. The percent itself is whatever the Comptroller's interest page shows for that quarter. We read it there. We do not freeze a percent into this paragraph.

An extension is only tentative. What opens the extra time is a payment that lands on time, or a Comptroller form in hand by the day the report was first due. The payment that usually qualifies is either all of the prior year tax, or 90 percent of the tax this report will actually show. The first annual report of a company that only became taxable during the prior year has to skip the pay-all-of-last-year route. If electronic funds transfer is not required, the route is Webfile or Form 05-164, and the extended day is November 15.

Pay 10,000 dollars or more during the previous state fiscal year and electronic funds transfer is required. In that case the first extended day is August 15, and a further extension reaches November 15. Pay 500,000 dollars or more and the extension request is a timely TEXNET payment under payment code 13080, with no Form 05-164 beside it. The page that explains extensions also names the clock time that makes a TEXNET payment count as on time. We open that page with you in the year you pay. We will not copy a clock into a sentence that goes stale.

Once the entity no longer has sufficient nexus, a final report is due inside 60 days. If those payment rules are met, the final report gains 45 extra days beyond its own first deadline. Winding the company up, or ending Texas nexus, also means a certificate of account status from the Comptroller, plus the Secretary of State steps for closing. Before we tell you which paper goes first, we read the Comptroller's close instructions. Their order is the order. Ours is not.

Sales tax, only if the boxes will sell

Franchise tax is the price of the entity's privilege. Sales tax is the price of a sale. Form a company that will sell most goods, or that will sell services the state has listed as taxable, and Texas sales tax becomes a second calendar beside the May report. The state piece is 6.25 percent. Those local pieces, whether they come from the city, the county, or a transit district, cannot add more than 2 percent. Stack them and a buyer on one sale still cannot be charged above 8.25 percent. The place of the sale sets the rate, so the address is looked up on the Comptroller rate locator the day the sale happens. A city's rate does not get memorized onto this page.

Approval of the permit is followed by a Comptroller letter, and that letter is where monthly versus quarterly gets assigned. A monthly seller reports on the 20th of the month that follows the month being reported. April, on that rhythm, is reported by May 20. The quarterly calendar uses four months only: April, then July, then October, then January. A seller on a yearly rhythm reports the prior year on January 20. Weekend days and legal holidays push that deadline forward to the next working day. We look at that year's holiday list before we promise you the moved day.

File on time and pay on time, and the seller may take 0.5 percent off the tax being reported. Prepay, and that 0.5 percent is still there, with an added 1.25 percent for the prepayment. File the report late and the penalty is 50 dollars, and late tax follows the same 5 percent then 10 percent shape already described for the franchise tax. Past due sales tax begins to draw interest once 61 days have passed after the due date. The percent is read from the same interest page. It is not copied here.

TEXNET is required for some sellers. If the payment itself is above 1,000,000 dollars, the seller starts that transfer by 8 in the evening, Central time, on the banking business day that comes before the due date. A TEXNET payment of 1,000,000 dollars or less may start as late as 10 in the morning, Central time, on the day the tax is due. After that electronic-pay line is crossed, the notice comes from the Comptroller as a letter. We sort that letter with you. We do not write you a bill the state never sent.

Sell into Texas from somewhere else, and prior-12-month Texas revenue under 500,000 dollars can mean no permit and no use-tax collection. Count gross revenue from tangible personal property and from services delivered into Texas. A sale the marketplace already taxed still belongs inside that 500,000 dollar gross figure. Live in Texas and sell only through a marketplace, and a permit is still required, because a Texas seller has physical presence. Gross-receipt records stay for at least four years. The books have to show which sales were taxed, which sales a marketplace already taxed, and which purchases were made for resale.

What the tick does not finish

Ticking a federal box does not finish the Texas report. An LLC that never files an election usually lands on the owner's own return, or on a partnership return when there are two or more owners. Form 8832 is the form that elects corporate treatment. Form 2553 is a later election, and it is not this screen. Either federal path can still be a taxable entity for franchise tax. The S election changes how profit is taxed to the owners. It does not, by itself, close the May report.

A made up shop, labeled as fiction and not a client, can show the quiet case. Revenue for the 2026 report year sits under 2,650,000 dollars. No franchise tax is due. The tax report stays unfiled. The information report still goes in, unless the shop is on the skip list. The federal return is a separate stack of paper, and it is walked on the other pages of this site. The shop does not exist. The split between the two reports does.

We do not file the certificate. A lawyer or the state filing office does that. We do not describe whose savings stand behind a debt. That question belongs with a lawyer. A report that attests to a financial statement is work we point outward. Preparing the franchise report, keeping the books that feed total revenue, and filing the information report are the work this page is about.

Bring the formation screen to the call, even if the company does not exist yet. Say whether it will be formed in Texas, or whether it will sell into Texas from somewhere else. Say which federal box you are leaning toward. We will read the May date, the information report, and the sales tax permit in the same conversation as the two boxes.