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Texas Franchise Tax & eCommerce

Texas is the second-largest economy in the United States — and one of the most important markets for eCommerce sellers. The good news: Texas has no personal or corporate income tax in the traditional sense. The not-so-simple news: Texas has a Franchise Tax that functions similarly and applies to virtually every business entity that operates there, including out-of-state sellers who cross a key revenue threshold. At Tall Oak Advisors, we regularly help eCommerce sellers understand their Texas obligations — which are frequently misunderstood precisely because of the "no income tax" reputation. Here's what you actually need to know.

Aug 21, 2026

4 min

Table of contents

Texas Income & Tax for eCommerce Businesses

💡 Important Distinction: Texas does not have a traditional corporate income tax — but it does have a Franchise Tax that is triggered by revenue from Texas operations. This article covers Franchise Tax nexus. Sales tax rules are separate and equally important. Tall Oak Advisors is launching a dedicated State Sales Tax service — more on that below.

What Is the Texas Franchise Tax?

The Texas Franchise Tax is a privilege tax imposed on most entities that do business in Texas — including corporations, LLCs, partnerships, and out-of-state businesses. It is calculated on a business's taxable margin (essentially, a modified version of revenue), not on net income, which is an important distinction.

It is administered by the Texas Comptroller of Public Accounts under Tax Code Chapter 171.

Who Has Nexus in Texas?

Texas uses two standards to establish franchise tax nexus for out-of-state businesses:

1. Physical Presence

Any of the following creates immediate physical nexus in Texas:

Having a temporary or permanent business location, office, or warehouse in Texas
Employing, or contracting with, representatives, agents, or salespersons operating in Texas
Owning, leasing, or using tangible personal property (including inventory) in Texas
Delivering goods into Texas using company-owned or leased vehicles
Incorporating or organizing in Texas — even with no other in-state activity

2. Economic Nexus

Effective January 1, 2019, Texas established economic nexus for franchise tax purposes. An out-of-state business creates economic nexus in Texas when it generates $500,000 or more in gross receipts from Texas sources during a 12-month period.

Note: Marketplace sales through platforms like Amazon or Etsy count toward this threshold, even if the marketplace collects and remits sales tax on your behalf.

What Are the Filing Requirements?

Every taxable entity with Texas nexus must file annual reports and pay any franchise tax due. Key details:

No Tax Due Threshold

For the 2025 tax year, entities with annualized total revenue at or below $2.47 million owe no franchise tax. However — and this is critical — you still must file an annual report even if no tax is owed. Failure to file triggers an automatic $50 penalty per late report, plus additional penalties if tax is owed.

Tax Rates

For entities above the no-tax-due threshold:

0.375% for qualifying retail and wholesale businesses
0.75% for all other entities (including most eCommerce businesses)

Filing Deadline

Texas franchise tax reports are due annually on May 15. Extensions are available, but any tax owed must still be paid by May 15 to avoid penalties and interest.

The Amazon FBA Factor in Texas

If you use Amazon FBA, your inventory may be stored in Amazon's Texas fulfillment centers — creating physical nexus in the state. Unlike California, Texas does not have a minimum inventory threshold for establishing physical nexus; any inventory stored in-state can create an obligation.

Texas has also been known to audit sellers who have both franchise tax and sales tax exposure, and the two systems share information. If you are registered for Texas sales tax, the Comptroller may also assess your franchise tax obligations.

Does Pub. L. 86-272 Apply?

Yes — federal Public Law 86-272 provides some protection from state income-based taxes for businesses whose only Texas activity is the solicitation of orders for tangible goods approved and shipped from outside the state. However, Texas's Franchise Tax is not strictly an income-based tax, and the protection under PL 86-272 is narrower in Texas than you might expect. If you have inventory or employees in Texas, you will generally not qualify for this protection.

What About Sales Tax?

Texas has a $500,000 economic nexus threshold for sales tax (based on a rolling 12-month period) and a combined state + local rate of up to 8.25%. Unlike income/franchise tax, the sales tax rules treat marketplace sales through certified platforms separately — but direct sales on your own Shopify or WooCommerce store always count toward the threshold.

At Tall Oak Advisors, we put together this guide as a resource for our eCommerce community. Tax rules vary significantly from state to state, and we want sellers to have the information they need to make informed decisions. More info at talloakadvisors.com

Disclaimer: The information in this article is for general informational purposes only and does not constitute legal or tax advice. Tax laws change frequently. Please consult a qualified tax advisor or CPA regarding your specific situation.

Sources: Texas Tax Code Chapter 171; Texas Comptroller of Public Accounts; Pub. L. No. 86-272; TX Comptroller Remote Sellers Guidance (2019).

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