Texas Corporation Costs
----|--------|----------| | Certificate of Formation filing fee | $300.00 | Tex. Bus. Org. Code Ch. 21 | | Annual report filing fee (Secretary of State) | $0.00 | Tex. Bus. Org. Code Ch. 21 |
You can file online or by mail. Online filing through the SOSDA system typically processes within 1–2 business days. Mail filing to the Secretary of State takes 5–10 business days. For questions about filing, call the Secretary of State at (512) 463-5555 or visit https://www.sos.texas.gov.
Franchise Tax
Texas has no state corporate income tax, but you must pay a franchise tax if your corporation's annual revenue exceeds $2,650,000 (the 2026 threshold). This franchise tax is calculated on your taxable margin, not gross revenue, which can significantly reduce your tax burden compared to gross receipts taxes in other states.
Tax Rates by Business Type
The standard franchise tax rate is 0.75% of taxable margin for most corporations. However, if your business qualifies as retail or wholesale, you pay only 0.375% of taxable margin—half the standard rate. There's also an EZ computation rate of 0.331% available for certain entities. If your annual revenue stays at or below $2,650,000, you owe no franchise tax at all under Tex. Tax Code Ch. 171.
Franchise Tax Rates (2026)
| Business Type | Tax Rate | Revenue Threshold |
|---|---|---|
| Standard (most businesses) | 0.75% of taxable margin | Exempt if ≤ $2,650,000 |
| Retail or wholesale | 0.375% of taxable margin | Exempt if ≤ $2,650,000 |
| EZ computation | 0.331% of taxable margin | Exempt if ≤ $2,650,000 |
Calculating Taxable Margin
Your taxable margin is total revenue minus cost of goods sold (COGS). Texas allows you to subtract COGS if you own the goods being sold. Under Tex. Tax Code Ch. 171, COGS includes direct labor costs, materials, handling, storage, depreciation, equipment rental, repairs, research and design costs, and quality control expenses. However, you cannot deduct selling costs, distribution costs, advertising, idle facility expenses, interest, income taxes, or officer compensation.
For example, if your corporation generates $5 million in revenue and has $3 million in qualifying COGS, your taxable margin is $2 million. At the standard 0.75% rate, you'd owe $15,000 in franchise tax.
Filing and Payment Deadline
Your franchise tax report is due to the Texas Comptroller of Public Accounts by May 15 each year, not to the Secretary of State. You file this as your Public Information Report (PIR) or Ownership Information Report (OIR). File online at the Comptroller's website: https://comptroller.texas.gov.
Your first franchise tax report is due May 15 of the year following your formation. For example, if you incorporate in 2026, your first report is due May 15, 2027.
Late Payment Penalties
Missing the May 15 deadline triggers serious consequences. You'll face a $50 penalty per late report, plus 5% of the unpaid tax if payment is 1–30 days late, or 10% if over 30 days late. Interest accrues after 61 days. More critically, the Comptroller can forfeit your right to transact business, and the Secretary of State may involuntarily terminate your corporation if you don't cure the delinquency under Tex. Tax Code Ch. 171.
Annual Report Fee
Texas charges $0.00 for your annual report filing fee. You file your Public Information Report (PIR) or Ownership Information Report (OIR) with the Texas Comptroller by May 15 each year, starting the year after you incorporate. There is no separate filing fee to the Secretary of State for annual compliance.
Your report must include your principal office address, principal place of business, names and addresses of all officers and directors, your SOS file number, and registered agent information. Filing is available online through the Comptroller's portal at https://comptroller.texas.gov.
Important: While the filing itself is free, missing the May 15 deadline triggers a $50 penalty plus potential interest and forfeiture of your right to do business. The Comptroller may then involuntarily terminate your corporation through the Secretary of State.
Registered Agent Costs
Texas does not mandate that you hire a registered agent, but you must designate one in your Certificate of Formation under Tex. Bus. Org. Code Ch. 21. You can serve as your own registered agent at no cost if you maintain a physical office address in Texas. However, many entrepreneurs use professional registered agent services for privacy and compliance management.
Professional registered agent services in Texas typically cost $75–$300 per year, depending on the provider and service level. These services provide a business address for official documents, mail forwarding, and statutory notice handling. If you choose this route, factor it into your ongoing costs.
Registered Agent Options
| Option | Cost | Requirements |
|---|---|---|
| Self-serve (you as agent) | $0 | Physical Texas office address |
| Professional service | $75–$300/year | None |
Franchise Tax Exemptions
If your corporation qualifies as a nonprofit under federal law, you may be exempt from Texas franchise tax. Specifically, corporations exempt from federal income tax under IRC Section 501(c)(3), 501(c)(4), 501(c)(5), 501(c)(6), 501(c)(7), 501(c)(8), 501(c)(10), or 501(c)(19) are exempt from Texas franchise tax under Tex. Tax Code Ch. 171(a).
You must file a copy of your IRS exemption letter with the Comptroller to establish the exemption. If the IRS has not yet issued your exemption letter, you can file provisional evidence of your application within 15 months of your charter date. If your federal exemption is later denied, you won't face penalties from your charter date to the denial date under Tex. Tax Code § 171.001(d)–(f).
Nonprofit Exemption Requirements
| Requirement | Details |
|---|---|
| Federal tax exemption | IRC § 501(c)(3), (4), (5), (6), (7), (8), (10), or (19) |
| Filing deadline | File IRS letter with Comptroller; or file application evidence within 15 months of charter date |
| Retroactive protection | Exemption recognized from charter date if later approved |
| Denial consequences | No penalty if IRS denies application |
Formation Statute and Legal Requirements
Your corporation is governed by Tex. Bus. Org. Code Ch. 21 (the Texas Business Organizations Code). This statute requires your Certificate of Formation to state the corporation's name, purpose, registered agent and office, and the number of authorized shares. You must have at least one director, and directors do not need to be Texas residents under Tex. Bus. Org. Code § 21.401.
You can structure your corporation as a traditional C corporation or elect S corporation status for federal tax purposes. Texas recognizes both elections at the state level. You can also elect to be a public benefit corporation if you want to pursue social or environmental purposes alongside profit-making under Tex. Bus. Org. Code § 3.007(e).
Formation Requirements
| Requirement | Details | Citation |
|---|---|---|
| Minimum directors | 1 | Tex. Bus. Org. Code § 21.401 |
| Director residency | Not required | Tex. Bus. Org. Code § 21.401 |
| Registered agent | Required | Tex. Bus. Org. Code § 21.201 |
| Certificate contents | Name, purpose, registered agent, authorized shares | Tex. Bus. Org. Code § 21.201 |
First-Year Cost Estimate
Here's what you'll pay to incorporate and operate your Texas corporation in its first year:
First-Year Costs (No Franchise Tax)
| Cost Item | Amount |
|---|---|
| Certificate of Formation filing fee | $300.00 |
| Registered agent (if using professional service) | $75–$300 |
| Franchise tax (if revenue ≤ $2,650,000) | $0.00 |
| Annual report fee | $0.00 |
| Total First-Year (no franchise tax) | $375–$600 |
First-Year Costs (With Franchise Tax)
| Cost Item | Amount |
|---|---|
| Certificate of Formation filing fee | $300.00 |
| Registered agent (if using professional service) | $75–$300 |
| Franchise tax (example: $2M taxable margin at 0.75%) | $15,000 |
| Annual report fee | $0.00 |
| Total First-Year (with franchise tax) | $15,375–$15,600 |
The actual franchise tax depends entirely on your revenue and COGS. If you stay under $2,650,000 in annual revenue, you pay zero franchise tax. Your first franchise tax report is due May 15 of the year following formation.
Ongoing Annual Costs
After your first year, your recurring costs are:
Annual Operating Costs (No Franchise Tax)
| Cost Item | Amount |
|---|---|
| Registered agent (if using professional service) | $75–$300 |
| Franchise tax (if revenue ≤ $2,650,000) | $0.00 |
| Annual report fee | $0.00 |
| Total Annual (no franchise tax) | $75–$300 |
Annual Operating Costs (With Franchise Tax)
| Cost Item | Amount |
|---|---|
| Registered agent (if using professional service) | $75–$300 |
| Franchise tax (example: $2M taxable margin at 0.75%) | $15,000 |
| Annual report fee | $0.00 |
| Total Annual (with franchise tax) | $15,075–$15,300 |
Texas has no annual filing fee to the Secretary of State, which keeps your compliance costs low compared to many other states. Your main ongoing expense is franchise tax if you exceed the $2,650,000 revenue threshold.
Texas Corporation vs. Texas LLC Cost Comparison
Both entities file with the Texas Secretary of State and pay the same franchise tax structure. Here's how they compare:
| Cost Item | Corporation | LLC |
|---|---|---|
| Formation filing fee | $300 | $300 |
| Annual report fee (SOS) | $0 | $0 |
| Franchise tax threshold | $2,650,000 revenue | $2,650,000 revenue |
| Franchise tax rate (standard) | 0.75% of taxable margin | 0.75% of taxable margin |
| Franchise tax rate (retail/wholesale) | 0.375% of taxable margin | 0.375% of taxable margin |
| Registered agent (optional) | $75–$300/year | $75–$300/year |
Key Difference: Corporations have more complex governance requirements (board of directors, shareholder meetings, bylaws) and may face double taxation if structured as a C corporation. LLCs offer simpler management and pass-through taxation by default. However, both entities pay identical franchise tax rates in Texas.
If you elect S corporation status for your corporation or S LLC status for your LLC, you can reduce self-employment taxes on distributions, which may offset the added complexity.
Hidden Costs to Budget For
Beyond filing and franchise tax, consider these additional expenses:
Business License and Permits
Depending on your industry, you may need a Texas business license or professional license. The cost varies by city and industry—some are free, others cost $50–$500+. Check with your city's business licensing office.
Employer Identification Number (EIN)
The IRS issues an EIN for free. You'll need this to open a business bank account and hire employees. Apply online at https://www.irs.gov/ein.
Business Bank Account
Most banks charge $0–$25/month for a business checking account. Some offer free accounts for startups.
Accounting and Tax Preparation
Budget $500–$2,500+ annually for tax preparation and bookkeeping, depending on transaction volume and complexity. If you exceed the franchise tax threshold, you'll need professional help calculating taxable margin correctly under Tex. Tax Code Ch. 171.
Compliance and Legal Review
If you need bylaws, shareholder agreements, or legal review of your formation documents, expect to pay $500–$2,000 in attorney fees.
How to File Your Certificate of Formation
You can file online through the Secretary of State's SOSDA system at https://www.sos.state.tx.us/corp/sosda/index.shtml. Online filing is the fastest option and typically processes within 1–2 business days. You can also mail your form to the Secretary of State at P.O. Box 13697, Austin, TX 78711-3697, but mail processing takes 5–10 business days.
Filing Steps
- Create an account on the SOSDA system or prepare your paper Certificate of Formation (Form 201)
- Complete all required fields: corporation name, principal office address, registered agent information, and authorized shares
- Pay the $300 filing fee by credit card (online) or check (mail)
- Submit your form online or mail to the Secretary of State
For questions about filing, call the Secretary of State at (512) 463-5555 or visit https://www.sos.texas.gov.
Franchise Tax Reporting and Compliance
File your franchise tax report with the Texas Comptroller of Public Accounts, not the Secretary of State. The deadline is May 15 each year. You can file online at https://comptroller.texas.gov/taxes/franchise/.
Your report must include your principal office address, principal place of business, names and addresses of officers and directors, your SOS file number, and registered agent information. If you miss the deadline, the Comptroller will assess penalties and interest, and may forfeit your right to do business in Texas.
Franchise Tax Compliance Timeline
| Deadline | Action | Penalty if Late |
|---|---|---|
| May 15 annually | File PIR/OIR with Comptroller | $50 + 5–10% of tax owed |
| 61 days after May 15 | Interest begins accruing | Interest compounds |
| Ongoing | Maintain good standing | Potential forfeiture and dissolution |
S Corporation Election and Tax Savings
If you incorporate as a C corporation, you'll face double taxation: the corporation pays franchise tax (or income tax at the federal level), and shareholders pay tax on dividends. To avoid this, you can elect S corporation status with the IRS on Form 2553. Texas recognizes S elections at the state level, and you'll still pay franchise tax based on your taxable margin.
An S election allows profits to pass through to your personal tax return, avoiding corporate-level taxation. This can save you significant money if you're profitable. Consult a CPA to determine whether an S election makes sense for your situation.
S Corporation Tax Advantages
- Pass-through taxation (no corporate-level tax)
- Self-employment tax savings on distributions
- Maintained liability protection
- Texas franchise tax still applies (not eliminated)
Public Benefit Corporation Option
If you want to pursue social or environmental purposes alongside profit-making, you can elect to be a public benefit corporation under Tex. Bus. Org. Code Ch. 21, Subchapter S. This requires no additional filing fee—you simply include the election in your Certificate of Formation. A public benefit corporation balances shareholder returns with public benefits specified in your certificate.
This structure is useful if you want legal protection for decisions that prioritize social impact over maximum profits, or if you plan to attract impact investors. Your board of directors gains a fiduciary duty to consider the stated public benefit, not just shareholder profit maximization.
Summary: Total Cost to Incorporate and Operate
First Year (no franchise tax):
- Formation