Running a small business in Texas is a lot like supporting your favorite soccer team: thrilling, occasionally bewildering, and full of surprises you didn’t sign up for. The good news? Texas doesn’t have a personal income tax—so you won’t have the state taking a bite every time you cash a paycheck. The less-good news? There are other taxes, forms, and deadlines that will keep you on your toes. Read on for a friendly, slightly sarcastic tour of the taxes small businesses face in the Lone Star State.
Top-level picture you can stick on the fridge:
Texas has no state personal income tax.
There is a state franchise (margin) tax that applies to many business entities.
Sales tax is charged on most taxable sales (6.25% state + up to 2% local = up to 8.25%).
Payroll taxes (federal FICA, FUTA, and state unemployment) apply if you have employees.
Local governments levy property taxes on business real and personal property.
Federal taxes (income tax, self-employment tax) still apply.
Think of this as Texas’ version of a business-level tax: not a corporate income tax per se, but a tax on a business’ “margin.” It applies to many entities (LLCs, corporations, partnerships) once your total revenue exceeds the state’s filing threshold. Even if you fall under the threshold, many entities still must file a “No Tax Due” report.
Important points:
Taxable margin can be calculated several ways (e.g., total revenue minus cost of goods sold, minus compensation, or 70% of total revenue). You choose the method that results in the lowest tax.
Rates and thresholds change from year to year. Historically, rates have been around 0.375% for certain retail/wholesale businesses and 0.75% for others, and the “no tax due” revenue threshold has been in the low millions. Always check the Texas Comptroller for current numbers.
File annually with the Texas Comptroller. If you’re under the threshold you may still need to file a report.
If you sell taxable goods or services in Texas, you’re probably required to collect sales tax from customers and remit it to the state.
State rate = 6.25% + local up to 2% = up to 8.25% total.
Many items are exempt (resale, certain manufacturing inputs, groceries/medical—depending on specifics).
Remote sellers and marketplace facilitators: Texas enforces economic nexus rules (Wayfair). If your Texas sales exceed the state threshold (for example, $500,000 in a 12-month period — check current law), you must register to collect Texas sales tax.
Filing frequency (monthly, quarterly, annually) depends on the amount you collect.
Hire people = extra paperwork and taxes. Expect to handle:
Federal payroll taxes: employer portion of Social Security and Medicare (FICA), withholdings for employees, and FUTA.
Texas unemployment tax (TWC): rates vary by employer history and other factors.
Income tax withholding: Texas doesn’t have state income tax, so no state withholding—nice relief there.
Texas relies heavily on property taxes at the local level. If you own business real estate or tangible personal property used in your business, local taxing entities will assess property taxes.
Don’t forget Uncle Sam:
Sole proprietors and partners pay federal income tax + self-employment tax (Social Security & Medicare on net earnings).
Corporations face federal corporate tax; S corporations and LLCs commonly use pass-through taxation.
Obtain an EIN from the IRS (if required).
Register with the Texas Comptroller for sales tax and franchise tax reporting (if applicable).
Register with the Texas Workforce Commission if you have employees (payroll/unemployment).
Keep good records: invoices, receipts, payroll records, and mileage logs.
File franchise reports annually—even if you owe no tax, you may need to file a “No Tax Due” report.
File sales tax returns on your assigned schedule (monthly/quarterly/annually).
Choose the right entity. An S corp election for an LLC can sometimes lower self-employment taxes—talk to a CPA before making the leap.
Use available deductions: home office (if applicable), Section 179 and bonus depreciation for equipment, business expenses, travel, and meals (subject to rules).
Consider retirement plans (SEP-IRA, Solo 401(k)) to reduce taxable income.
Explore local incentives and abatements. Cities and counties sometimes offer property tax abatements or incentives for job creation.
Keep sales tax exemptions documentation (resale certificates, manufacturing exemptions) organized—we promise auditors like paperwork almost as much as accountants like coffee.
Assuming Texas means “no taxes.” Correct on personal income tax, but not everywhere else.
Missing franchise report deadlines. Even "no tax due" filers can attract late fees if they don’t file on time.
Mixing personal and business funds. Keep separate accounts; it saves headaches and helps protect limited liability.
Failing to collect sales tax on taxable sales or failing to register when remote sales cross nexus thresholds.
Figure out your business structure and registration status with the Texas Comptroller.
Make sure you have an EIN and any required state registrations (sales tax permit, TWC for payroll).
Set up basic bookkeeping—use software that separates sales tax collected from revenue.
Talk to a CPA or tax advisor about entity choice, franchise tax calculations, and federal tax strategies.
Running taxes in Texas can be less painful than a derby loss—unless you’re a São Paulo fan thinking about relegating Corinthians, in which case you already know how to celebrate crushing a rival. Treat your taxes with the same game plan: preparation, a good defense, and celebrating when everything goes your way.
If you want, I can:
Walk through which taxes your specific business is likely to owe based on your business type and revenue.
Provide a printable checklist for registration and filings.
Help draft questions to bring to a Texas-based CPA.
Want me to run through your scenario? Tell me your business type (sole proprietor, LLC, S corp, etc.), a rough revenue figure, and whether you have employees—and I’ll give you tailored next steps.