Texas does not tax what you earn. One form in May keeps it that way.

There is no state income tax on you, and no state corporate income tax on your company. Whatever the job cleared, whatever you paid yourself out of it, Texas does not take a cut of that number.

What Texas has instead is the franchise tax, and the name misleads people. It is a margin tax on entities, administered by the Texas Comptroller, and for a contractor turning under $2.65 million a year the practical shape of it is this: you owe nothing, and you file one short form by 15 May to say so.

That form is the whole subject here. It is fifteen minutes of typing that keeps your company legally able to sign a contract, pull a permit, and sue a general contractor who is sitting on your money. Skip it and you can win a lien fight on the facts and lose it at the courthouse door.

The three bills that do not arrive

That third line is the one contractors moving from California feel most. California bills an $800 minimum franchise tax every year whether the company earned a dollar or not. Texas charges a $300 filing fee once, at formation, and then asks for a report.

The franchise tax is not a fourth bill hiding behind those three. It is a tax on margin, it starts above a revenue line that sits well clear of a solo operator and a small crew, and below that line the rate on you is zero.

Who the franchise tax is actually looking for

It applies to taxable entities: LLCs, PLLCs, corporations, S corporations, limited partnerships, professional associations, and business trusts formed in Texas or doing business in Texas. Tax Code Ch.171 is the whole scheme.

Two structures sit outside it entirely. A sole proprietor is not a taxable entity, and neither is a general partnership owned directly by natural persons. Tax Code s.171.0002 says so in plain terms.

Read that as arithmetic rather than a warning. Forming an LLC costs $300 at the Secretary of State and buys you a wall between a claim on a job and the truck in your driveway. The recurring price of that wall is one annual report and, below the threshold, zero dollars of tax. That is a cheap wall. The rest of the comparison, including how the IRS treats each choice, is LLC versus sole proprietor in Texas.

The number that decides your whole year

Annualized total revenue at or below the no-tax-due threshold means no franchise tax and no franchise tax report. The threshold is adjusted for inflation every even year under Tax Code s.171.006.

Total revenue here is the top line, not profit. It is your gross receipts before you pay for a single sheet of plywood, and it is annualized if your accounting period was short. A two-person crew billing $40,000 a month lands around $480,000 for the year, comfortably inside.

Annualized deserves a worked example, because a first partial year is where the arithmetic catches people out. You divide the revenue by the number of days in your accounting period and multiply by 365. Form the company on 1 September, bill $260,000 by 31 December, and the period is 122 days, so the figure the threshold is measured against is 260,000 divided by 122 times 365, which is about $778,000. Four strong months still annualize to under a third of the line.

One more piece of good arithmetic sits underneath the threshold. Under Tax Code s.171.002(d) you owe nothing if the tax computed comes out under $1,000, even when your revenue is above the line. Crossing the threshold does not mean you start writing checks the same year.

Form 05-102, one screen, fifteen minutes

Below the threshold you skip the tax report entirely. Since the 2024 report year the old No Tax Due Report is gone, and the Comptroller stopped asking for it. What survived is the information report, and that one still has your name on it.

The Comptroller confirms it directly: the information report is due even when the entity does not have to file a franchise tax report because revenue sits at or below the no-tax-due threshold.

The form asks for your officers, directors or managers, the addresses, and any entity that owns 10% or more of you. You file it through Webfile in the Comptroller's eSystems with your 11-digit taxpayer number. If your ownership and your address have not changed since last year, the screen prefills and you are confirming, not composing.

Dates worth putting in the phone now. 15 May 2026 was a Friday. 15 May 2027 falls on a Saturday, which pushes that report to Monday 17 May 2027, because a due date landing on a weekend or state holiday rolls to the next business day. Form a company this year and your first report is due in May of next year.

What that form is really protecting

Here is why fifteen minutes buys more than it looks like it does.

Miss the report and the Comptroller forfeits your right to transact business in Texas. Under Tax Code s.171.252, a forfeited entity is denied the right to sue or defend in a court of this state. Under s.171.255, each director and officer becomes personally liable for debts the entity takes on while it is forfeited.

Now put that next to how you get paid in Texas. Your monthly notice under Tex. Prop. Code s.53.056 lands on time, your lien affidavit is filed inside the deadline, the retainage under s.53.101 is sitting there with your name on it, and the general contractor still refuses. The next move is a suit to foreclose the lien. A forfeited LLC does not get to make that move. The paperwork you did perfectly all year runs into a form you did not do in May.

There is also a flat $50 late filing penalty under Tax Code s.171.362, charged for the late report itself, separate from any tax.

The way back is short, which is worth knowing rather than worrying about: file the delinquent reports, request a tax clearance letter on Form 05-391, then file an Application for Reinstatement, Form 801, with the Secretary of State for $75. The state keeps a numbered form for it, which tells you how ordinary the situation is. It is still a great deal cheaper to spend a May afternoon than to run that sequence in the middle of a payment fight. The clocks that fight runs on are counted for you by the Texas lien deadline calculator, and the deadlines behind it are in Texas mechanics lien deadlines.

Over $2.65 million: pick the cheaper arithmetic

Cross the threshold and you get a choice, and the choice is worth real money.

EZ Computation, Form 05-169. Available up to $20 million of annualized total revenue. It applies a flat 0.331% to your apportioned total revenue with no deductions. Tax Code s.171.1016. It is fast, and for a business with thin costs it is fine.

Long Form, Form 05-158. Tax is 0.75% of taxable margin, or 0.375% if you are primarily in retail or wholesale trade, which construction work is not. Taxable margin under Tax Code s.171.101 is the smallest of four numbers:

Margin is the smallest, so $900,000. Tax at 0.75% is $6,750. The same business on the EZ Computation pays 0.331% of $3,000,000, which is $9,930. Doing the longer form saved $3,180 for one afternoon of bookkeeping.

Compensation is the other lever, and it is a real one for a crew-heavy business: wages and benefits for the people on your payroll, subject to a per-person cap the Comptroller re-indexes on the same even-year clock that moves the threshold. You take whichever subtraction is bigger, cost of goods sold or compensation, not both. For a contractor buying material and subcontracting trades, cost of goods sold is usually the bigger one, and the reason is a subsection Texas wrote for this industry specifically.

The deduction Texas wrote for people who build things

Cost of goods sold usually belongs to businesses that own goods and sell them. A contractor improving somebody else's real property owns none of it, and on a plain reading would be locked out of the biggest deduction in the statute.

Texas wrote around that on purpose. Tex. Tax Code s.171.1012(i) provides that a taxable entity furnishing labor or materials to a project for the construction, improvement, remodeling, repair or industrial maintenance of real property is considered to be an owner of that labor and those materials, and may include the costs in its cost of goods sold.

That single subsection is why the long form beat the EZ Computation in the table above. Your framing labor, your concrete, your lumber, your subcontracted trades on a job you are running: that is includable cost, not an overhead you have to eat before the state calculates margin. Labor on real property construction is deductible here in a way it is not for a service business next door.

Two habits make that deduction available rather than theoretical. Job cost your materials and your labor to the job, so the number exists when you need it. And run your material purchases through the right contract shape, because that decision also drives what sales tax you pay on the same materials: the split between lump sum and separated contracts is in sales tax for Texas contractors.

Put it in the calendar the day you form the company

The pattern that keeps a Texas construction entity clean is small and repeats:

1. Form the entity, get the taxpayer number and the Webfile number from the Comptroller, and store both where your bookkeeping lives.
2. Book 15 May every year as a recurring appointment, starting the May after formation.
3. File Form 05-102 or Form 05-167. Below the threshold, that is the entire obligation.
4. Watch the top line. When trailing revenue nears $2.65 million, start job costing tightly, because cost of goods sold is about to be worth thousands.

AEC Stack keeps your revenue running total, your job costs and your entity dates in one place, so the May filing is a confirmation rather than a reconstruction. There is no monthly subscription: 2.5% of each invoice processed through the platform, collected on the payment due date, so the software gets paid after you do.

Texas asks for no share of what you earn, and below the threshold no share of what the company bills. It asks for one form in return, and that form is what keeps your right to enforce your own invoices.

Next: the full formation sequence with costs and filing order is start a construction business in Texas, and you can run it with the paperwork prefilled at start your business. Already trading and want the work side moving this week: find work.