Pay Your Texas Small Business Taxes

Staying legally compliant with Texas state taxes is central to operating your small business and giving it the best chance to prosper. One of the most important compliance tasks a Texas small business owner will face during its lifetime is paying taxes. Knowing exactly which state taxes apply to which business can be stressful for even experienced business owners. But don’t worry, we are here to help. This guide to Texas small business taxes will give you an overview of the types of taxes you might need to pay and how and when to pay them. You’ll also learn which of our services and tools can make things easier when tax time rolls around.

If you’re looking for more comprehensive state compliance help, our Worry-Free Compliance Service will organize your business documents. It’ll also keep track of required filing deadlines like annual reports.

If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses.

Step 1: Establish your Texas business’s corporate income tax obligations

Texas is in the minority of states that don’t have a standard corporate income tax. Rather, Texas taxes a business’s gross receipts under a franchise tax (see franchise tax definition). However, only businesses with gross receipts in excess of $1,180,000 are required to file and pay the franchise tax. If your business is required to pay the franchise tax, Texas allows your business to elect:

• E-Z computation which taxes 100% of revenue at .331%
• 70% of total revenue at the below rate
• 100% of total revenue less cost of goods at the below rate
• 100% of revenue less total compensation at the below rate

The non-E-Z computation tax rate is .75% for non-wholesalers and non-retailers, and .375% for wholesalers and retailers. Finally, filing and payment of the franchise tax is due on or before May 15 each year.

You might be wondering if there is any tax advantage to having a pass-through entity like a limited liability company (LLC). Usually, this consideration is critical to managing tax rates. But for two reasons, the Texas tax structure renders the form of your business largely irrelevant (at least for state tax purposes). The first (as discussed above) is Texas has no corporate income tax. The second is Texas has no personal income tax. Accordingly, whether the franchise tax “flows through” has no bearing on the tax rate applied since there is no income tax.

For these reasons, calculating your small business’s taxes is a little different in Texas than in other states.

Step 2: Determine your Texas business’s employment taxes

Largely because Texas has no personal income tax, there is no withholding tax. In addition, there is no alternative payroll tax. Accordingly, your only obligations for withholding are for federal taxes and also Texas unemployment insurance. 

Step 3: Establish your Texas business’s additional state tax obligations

At this point you have probably figured out that Texas has minimal tax obligations for businesses. There is no corporate income tax, and there is no employment or payroll tax. However, Texas does have several of the other “smaller” state business taxes. 

Sales Tax

To start, Texas has a state sales tax. As of 2021, the base rate is 6.25%, which is then adjusted upward by local municipalities to a maximum combined rate of 8.25%. Check with the city or county in which your business operates to get the correct sales tax rate. In addition, your business will be informed by mail whether you’re required to file quarterly or monthly, which makes tracking your expenses and receipts incredibly important.  

Regardless of whether your business is classified as a monthly or quarterly filer, tax returns and payments are due on or before the 20th day of the month immediately following the applicable period.  

Privilege/Franchise Tax

After the sales tax comes the privilege tax (also known as a franchise tax). As discussed above, Texas has a gross receipts tax called the franchise tax. A privilege tax, in its classic form, is a tax on businesses for the privilege of doing business in a state. The state doesn’t have a privilege tax and has used the franchise tax term for its unusual corporate tax structure.

Unemployment Tax

Texas has an unemployment insurance tax. State businesses are required to file and pay unemployment insurance taxes on the first $9,000 of each employee’s wages. The range of the tax rate is .31% to 6.31% with an average of 1.42%. The due dates for unemployment insurance taxes have been adjusted by Texas due to the COVID-19 pandemic and aren’t traditional due dates. Check with the Texas Workforce Commission Unemployment Insurance Division for non-pandemic due dates.

Excise Tax

To supplement its unusual business tax structure, Texas has a rather robust excise tax system. It taxes wholesalers and retailers of fuel, cigarettes, and alcohol. Unlike a sales tax, which is levied upon the value of the sale to the consumer, excise taxes are levied on the seller based on a flat rate per unit. If your business engages in the wholesale or retail of goods subject to excise taxes, or if you’re unsure, consult the Texas Comptroller and review their website to see what various categories are subject to excise taxes.  

Step 4: Prepare to file and pay your Texas business taxes

Other than the unemployment insurance tax, you can pay all your business taxes with the Texas Comptroller. Keeping with the philosophy that timely compliance with your business’s tax obligations will help its long term growth and stability, we encourage you to establish an online account with the Texas Comptroller. To pay your unemployment insurance tax, you can create an account with the Texas Workforce Commission and pay online or by mail. 

A natural complement to good tax compliance is good record keeping. To properly file and pay your Texas small business taxes, it’s important to keep complete and thorough business records.  Such records include:

• Customer accounts receivable
• Vendor accounts payable
• Expense receipts (e.g., gas, vehicle repair, office supplies, etc.)
• Rent or mortgage payments
• Insurance premiums
• Payroll

While this list isn’t complete, it will give you a good start on building a thorough set of business tax records. We can also help you efficiently and accurately gather all this information. Take a look at how we can streamline your recordkeeping and money management obligations with the ZenBusiness Money App. 

Do I need an accountant?

When running a small business every penny counts. Deciding whether you need to hire professional services can be extremely difficult because of both the cost and also your natural disposition as a go-getter. 

But sometimes the wisest move is to recognize your limits and let a specialist take over. In that regard a tax professional can be an asset to your business. Tax professionals can not only help you comply and file your taxes properly, they can also give advice as to the timing of the sale of assets, how and when to hire employees, and what tax elections to take to reduce your business’s tax footprint. In addition, check out the IRS’s website, which has a guide to tax preparer qualifications and certifications.

Not sure how to stay compliant? Learn more about legal compliance for small business owners.

How We Can Help

From formation and beyond, we can help you stay ahead of your Texas small business’s taxes needs, even at tax time. With our ZenBusiness Money App, you can easily send custom invoices, accept credit card and bank transfer payments, and manage your clients from a simple and easy-to-use dashboard.

If your business is still in the formation phase, our Texas LLC or Corporation Formation Services can help you get started.

No matter what point you are at in your business’s lifecycle, we have the tools and services to support you along the way.