Does my foreign-owned LLC need to pay the Texas franchise tax even though Texas has no income tax?

Texas is one of the states with no personal or corporate income tax. However, it imposes a franchise tax (officially called the "margin tax") on most entities doing business in the state. This includes LLCs, corporations, partnerships, and other legal entities.

The franchise tax is based on the entity's taxable margin, which is the lower of: (1) 70% of total revenue, (2) total revenue minus cost of goods sold (COGS), (3) total revenue minus compensation, or (4) total revenue minus $1 million. You choose the method that gives you the lowest tax.

Texas provides a no-tax-due threshold that exempts smaller businesses from actually paying franchise tax. For reports due in 2026 and 2027, the threshold is $2.65 million in total revenue. If your LLC's total revenue is at or below this threshold, you owe no franchise tax.

With $400,000 in gross revenue, your LLC falls well below the no-tax-due threshold. This means you owe $0 in franchise tax.

However — and this is critical — you still must file the applicable Public Information Report (PIR) or Ownership Information Report (OIR) by May 15. Failure to file that required report can result in the Texas Comptroller forfeiting your LLC's right to do business in Texas.

The applicable Texas filing is due on May 15 each year. For reports due in 2026 and 2027, an entity at or below the $2.65 million no-tax-due threshold does not file a franchise-tax return; Texas eliminated the No Tax Due Report beginning with the 2024 report year.

You must still file the applicable Public Information Report (PIR) or Ownership Information Report (OIR) by May 15. The report discloses the entity information Texas requires. If revenue exceeds the threshold, use the Texas Comptroller's current franchise-tax instructions to identify the return and calculation that apply to your facts.

If your LLC's total revenue exceeds the no-tax-due threshold, the franchise tax rate depends on your business type:

- Retail and wholesale businesses: 0.375% of taxable margin - All other businesses: 0.75% of taxable margin

For the EZ Computation, the rate is 0.331% of total revenue (apportioned to Texas).

Your taxable margin is calculated as the lower of the four methods mentioned above. For most service-based businesses owned by foreign nationals, the compensation deduction method often produces the lowest taxable margin.

Important: The franchise tax applies to revenue apportioned to Texas. If your e-commerce sales are primarily to customers outside Texas, you would apportion revenue based on where your customers are located, potentially reducing your Texas franchise tax.

The consequences of not filing are severe. The Texas Comptroller will forfeit your LLC's right to transact business in Texas. A forfeited LLC:

- Cannot sue or defend lawsuits in Texas courts - Cannot maintain its assumed name - Has each officer and director become personally liable for debts incurred after forfeiture

To reinstate a forfeited LLC, you must file all delinquent reports, pay all taxes, penalties, and interest owed, and pay reinstatement fees. Penalties include a 5% penalty if tax is paid 1-30 days late, and 10% if paid more than 30 days late, plus interest.

The Comptroller sends notices before forfeiture, but if your LLC's address is overseas and mail is unreliable, you could miss these notices.

Texas is a popular choice for foreign LLC owners because of its no income tax and strong business laws. However, the Texas information-reporting obligation is an annual compliance burden that states like Wyoming and New Mexico do not have (Wyoming has no franchise tax, and New Mexico has no annual report for LLCs).

For foreign-owned LLCs with revenue at or below the no-tax-due threshold, no franchise tax is owed, but the applicable PIR or OIR is still due each May 15. It is an additional filing to remember beyond federal Form 5472 and pro forma 1120.

If you are choosing a state purely for minimal compliance, Wyoming may offer fewer annual filing obligations than Texas.