Texas Has No State Income Tax. Here Is What You May Still Owe.

Texas is known for having no state income tax, and that part is true. What gets business owners into trouble is assuming that fact covers every state obligation. Two filings in particular catch people who thought they were done once the federal return was filed: the franchise tax annual report, and Comptroller sales tax.

Franchise tax and the annual report

The franchise tax applies to most businesses operating in Texas. Even when no tax is owed for the year, many entities are still required to file an annual report. Missing a filing you did not owe money on is still a missed filing, and the Comptroller can assess penalties for that alone. I see this often with LLCs that assumed zero tax meant zero paperwork.

Comptroller sales tax

If you sell taxable goods or certain services in Texas, you may need to collect and remit sales tax to the Comptroller on a regular schedule. The rules for what is taxable are not always obvious from the outside, and registration, filing frequency, and local rates all matter. Getting this wrong for a few quarters creates a cleanup project that is harder than setting it up correctly at the start.

What I check with a new Texas client

When I sit down with a Texas business owner for the first time, I ask about entity type, whether a franchise tax report was filed, whether sales tax registration exists, and whether the federal return already reflects those state facts. The goal is not to invent obligations that do not apply. The goal is to make sure the ones that do apply are not sitting quiet until a notice arrives.

If you are unsure which Texas filings apply to your business, I offer a free consultation. Call (210) 842-8197, or set up a virtual meeting anywhere in the state.