Texas No State Tax Business Owners Guide: What You Actually Owe When the Personal Income Tax Disappears
The Texas franchise tax (margin tax) — what triggers it and how it's computed
Texas calls it the franchise tax. Tax practitioners call it the margin tax. The legal authority sits in Chapter 171 of the Texas Tax Code. Every “taxable entity” formed in Texas or doing business in Texas owes the tax — LLCs, corporations, professional associations, business trusts, partnerships that aren’t general partnerships of natural persons.
Sole proprietors and general partnerships made up entirely of natural persons are exempt. That’s a meaningful carve-out. A solo consultant operating as a Schedule C in Texas owes zero state-level tax on the business. The moment that same consultant forms an LLC and elects S-corp taxation, the franchise tax framework attaches even if the actual tax due is zero.
The no-tax-due threshold for reports originally due on or after January 1, 2024 is $2.47 million of total revenue. The Texas Comptroller indexes this number periodically — it was $1.23 million through 2023, then doubled. If your taxable entity’s total revenue (a defined term tied to federal gross income with adjustments) sits below the threshold, you file a No Tax Due Report, formerly Form 05-163, now consolidated into the standard franchise return process under Form 05-158.
Cross the threshold and you compute taxable margin. Margin equals the LEAST of four amounts: total revenue minus cost of goods sold, total revenue minus compensation, total revenue times 70%, or total revenue minus $1 million.
Most service businesses pick the compensation deduction because they don’t sell goods. Most product businesses pick COGS. The total-revenue-minus-$1M option is a floor for small filers just over the threshold.
Tax rate on margin: 0.75% standard, or 0.375% for entities engaged primarily in retail or wholesale trade. Retail/wholesale gets the lower rate because the legislature wanted to soften margin on inventory-heavy businesses.
A Texas LLC with $3 million revenue and $1.4 million payroll: total revenue $3M, compensation deduction caps at $400K per employee (indexed), assume effective comp deduction is $1.4M. Margin = $3M minus $1.4M = $1.6M. Tax at 0.75% = $12,000. Not crippling but not zero.
A retail LLC with $5 million revenue, $1.2 million COGS: margin = $5M minus $1.2M = $3.8M. Tax at the retail rate of 0.375% = $14,250.
Compensation deduction cap: $400K per individual for reports originally due on or after January 1, 2024, indexed for inflation. Pay yourself $600K as the S-corp owner-employee, only $400K reduces margin. The extra $200K still gets taxed federally as wages but loses Texas margin benefit.
Filing deadline: May 15 each year for calendar-year filers, or the 15th day of the 5th month after fiscal year end. Extension to November 15 available with Form 05-164. Late filing penalty: $50 minimum plus 5% to 10% of tax due.
Total revenue definition under Tax Code §171.1011: starts with the federal gross income reported on Form 1120, 1120-S, or 1065 line 1c plus other income items, then subtracts certain Texas-specific adjustments. Federal cost of goods sold isn’t deducted at this stage — that’s a separate margin computation step. The total revenue number is large and includes interest income, dividends, rental income, royalties, and gains from sale of capital assets.
EZ computation option: entities with total revenue under $20 million can elect Form 05-169 (EZ computation), paying 0.331% on total revenue (capped). Effective rate is lower than the standard 0.75% only for businesses with thin margins. Run the math both ways. Most Texas service businesses end up paying less under the standard long-form computation because compensation deductions are generous.
Combined reporting under §171.1014: affiliated entities (80%+ common ownership) that pass the unitary business test file a combined report. The combined report aggregates all members’ total revenue, COGS or comp deductions, and Texas apportionment factor. The combined-group approach prevents owners from splitting operations across multiple Texas entities to game the threshold or compute artificially low margin.
Tiered partnership election: a partnership receiving income from a lower-tier partnership can elect to exclude that flow-through revenue from total revenue if the lower-tier partnership is reporting and paying franchise tax on its own. Avoids double-counting in tiered structures. The election is made on the upper-tier entity’s report.
Estimated payments: Texas does NOT require quarterly estimated franchise tax payments. The annual return reconciles the full year’s liability. Compare this to states like California (estimated payments quarterly) and New York (estimated payments quarterly) — Texas’s annual-only approach is friendlier on cash flow.
Texas residency: domicile, not 183 days
Texas doesn’t run a 183-day residency test for personal income tax purposes — because there’s no personal income tax to police. But residency still matters for federal purposes (state of domicile drives certain federal items), estate planning, asset protection, and proving you’re no longer subject to your prior state’s income tax.
Domicile is the controlling concept. Domicile means physical presence plus intent to remain indefinitely. You can only have one domicile at a time. The Texas Supreme Court applied the standard in In re Estate of Steed and a long line of probate cases — domicile is a factual question turning on the totality of circumstances.
Indicators Texas (and your prior state) will weigh: where you sleep most nights, where your driver’s license is issued, where you’re registered to vote, where your homestead is, where your primary doctor and dentist practice, where your children attend school, where your church and clubs are, where your most personal possessions sit, where your business is operated from, the address on your tax returns.
Property ownership patterns. Owning a Texas home is one factor. Selling the prior-state home is a stronger factor. Renting out the prior-state home short-term suggests partial retention of the prior state for personal use. Renting on a 12-month-plus arm’s-length lease at fair market value to an unrelated tenant comes closer to severing the prior state’s claim.
Bank accounts and credit cards. Maintaining the prior state’s primary bank account flags the auditor — why keep it if you’ve truly moved? Open Texas accounts at Frost Bank, Texas Capital Bank, or any local Texas institution. Move the primary checking and savings. Keep one prior-state account if needed for vendor payments but not as the main hub.
Moving from New York: New York’s Department of Taxation and Finance is aggressive about domicile audits. If you keep a New York apartment after moving to Texas, expect a residency audit within 18 to 36 months. The New York test layers a separate 183-day statutory residence rule on top of domicile — you can be domiciled in Texas and STILL be a New York statutory resident if you maintained a permanent place of abode in New York and spent more than 183 days there.
See our New York domicile test guide for the specifics. The short version: sell or rent out the NY apartment on arm’s-length terms, change every address-of-record, and document your day-by-day Texas presence with credit card statements and EZ-Pass records.
Moving from California: California’s Franchise Tax Board uses similar indicators. The FTB’s Publication 1031 lays out the residency factors. We cover the audit in detail in our California residency audit guide. The California test is technically a “closer connection” analysis but operates like a domicile test in practice.
Moving from Illinois: Illinois 35 ILCS 5/1501(a)(20) defines residents as individuals domiciled in Illinois or maintaining a permanent place of abode in Illinois plus 183 days. Mirror of New York’s framework. We address Illinois departures in detail later in this guide.
What Texas asks for if you’re claiming Texas residency: a Texas driver’s license issued through the Department of Public Safety, voter registration in your Texas county, Texas vehicle registration, a Texas homestead exemption filed with your county appraisal district. These aren’t legal prerequisites for domicile but each one is a concrete data point.
Homestead exemption: file the application with your county appraisal district by April 30 of the year after you establish residency. The exemption reduces school district property tax by $100,000 of assessed value for the 2023+ years (was $40,000 previously, raised by Proposition 4 in 2023). This is a one-time filing — the exemption renews automatically each year you keep the home as your principal residence.
The non-tax indicators matter more than people expect: PTA membership, gym membership, hairdresser, mechanic. Tax authorities want to see the pattern of life, not just paperwork.
Day-counting documentation. Keep a contemporaneous day-by-day calendar tracking which state you were in each day. Back it up with credit card transactions, EZ-Pass and toll records, airline boarding passes, Uber receipts, cell phone tower data (which can be subpoenaed by aggressive auditors), and date-stamped photos. Apps like TaxBird, TaxDay, and Monaeo automate residency tracking. New York’s auditors will compare your reported NY days against credit card metadata; mismatches generate adjustments.
The In re Estate of Kassner New York case and the Matter of Gaied decision (2014) shaped what counts as a permanent place of abode. Gaied held that a dwelling has to be actually used as a residence by the taxpayer to count. Mere ownership without occupancy isn’t automatic abode status. But occupancy of any amount during the year resurrects abode status.
For Texas-bound owners with prior-state real estate, the cleanest path is sale. The second-cleanest is long-term arm’s-length lease. Anything else creates audit exposure.
Sales and use tax — the consumption-tax replacement
Texas taxes sales of tangible personal property and certain services at a state rate of 6.25%. Local jurisdictions (cities, counties, special purpose districts) can add up to 2.0% on top, for a combined maximum of 8.25%. Most populated areas hit the cap.
Houston, Dallas, Austin, San Antonio, Fort Worth — all 8.25% combined.
Sales tax registration: required if you have nexus and make taxable sales. Apply through the Texas Comptroller Sales Tax portal. Permit is free.
Filing frequency depends on liability volume: monthly if you collect $500+ per month, quarterly if $100 to $500, annually if less than $100. Due the 20th of the month after the period ends.
Services taxed in Texas (partial list): data processing, information services, telecommunications, real property services, security services, amusement services, motor vehicle parking. Professional services (legal, accounting, medical, architectural) are generally exempt — this is unusual compared to some other states moving to broaden the base.
Economic nexus under Wayfair: Texas adopted the South Dakota v. Wayfair framework. Out-of-state sellers crossing $500,000 in Texas sales must collect Texas sales tax even without physical presence. This catches e-commerce sellers shipping into Texas. Comptroller Rule 3.286 details the standard.
Marketplace facilitators: Texas requires Amazon, eBay, Etsy, Walmart Marketplace, and similar platforms to collect tax on third-party sales. If you sell only through these platforms and have no other Texas activity, the platform handles your sales tax compliance. You still file a Texas franchise return if you have a taxable entity.
Use tax: if you bring property into Texas for use that wasn’t taxed elsewhere at an equivalent or higher rate, Texas use tax applies. Common example: a New York LLC buys a $200K piece of equipment in New York, pays $17.5K of NY sales tax, then moves the equipment to a Texas job site. Texas use tax applies on the difference if the Texas rate exceeded NY’s — usually not the case so no further tax owed. The credit-for-tax-paid mechanism prevents double taxation.
Sales tax holidays: Texas has three each year — clothing in August, Energy Star appliances in May, emergency preparation supplies in April. Limited scope but worth noting for retail businesses.
Audit risk: the Comptroller has an active audit program for sales tax. Computer-generated leads from purchases lacking matching sales tax remittance, third-party reports, and use tax non-filings drive audits. Statute of limitations is 4 years from due date, longer for fraud or non-filing.
Voluntary disclosure agreements (VDAs): Texas Comptroller offers VDA programs for businesses that discover prior unreported sales tax liability. The VDA limits look-back to 4 years and waives penalties (interest still applies). Get into a VDA before the Comptroller initiates contact — once contact is made, the favorable VDA terms are off the table.
Resale certificates and exemption certificates: keep them organized. Each tax-exempt sale needs documentation. Audit defense without certificate documentation is brutal — auditors assume tax was owed and the burden shifts to you.
Texas direct payment permit program: large businesses (typically $800K+ of annual tax) can apply for a Direct Payment Permit, paying sales/use tax directly to the Comptroller rather than to vendors. Useful for businesses with complex purchase patterns. Application via Form AP-101.
Property tax — the real Texas tax
Texas property tax burden ranks among the heaviest in the nation. Effective rates of 2.0% to 3.0% of market value are common — meaning a $1 million home pays $20K to $30K of property tax per year. A $5M commercial building can pay $100K to $150K.
There’s no state property tax. All property tax is local — school districts, counties, cities, community college districts, hospital districts, water districts. The school district piece is usually the largest single component (often 1.0% to 1.4%).
Appraisal: county appraisal districts (CADs) value property each year as of January 1. The CAD sends a notice of appraised value in spring. You have until May 15 (or 30 days after notice, whichever is later) to file a protest with the Appraisal Review Board.
Protest is routine and expected. Most commercial property owners protest every year. Hire a property tax consultant or attorney — contingent fee arrangements (usually 30% to 50% of tax savings) are common. The CAD expects pushback and starts negotiations from a higher number.
Business personal property: Texas taxes business-owned tangible personal property — equipment, furniture, fixtures, inventory. Each business files an annual rendition with the CAD by April 15 (or April 30 in some counties) listing all business personal property.
Many small businesses fail to file the rendition and get hit with a 10% penalty plus an arbitrary CAD-assigned value. File the rendition. Use the protected-information option to keep specifics confidential.
Freeport exemption: if your inventory is in Texas less than 175 days and is destined for out-of-state shipment, the Freeport exemption can eliminate property tax on that inventory. Apply with the CAD; need to demonstrate the goods-flow pattern.
Goods-in-transit exemption: similar relief for inventory passing through Texas. The county must have adopted the exemption (some have, some haven’t).
Pollution control equipment, manufacturing equipment used in research and development, certain solar/wind equipment — various other exemptions exist. Each requires application and documentation.
School district property tax compression: the state has been pushing down school district maintenance and operations (M&O) tax rates over the past several years. Property tax bills should reflect lower M&O rates than 2018 levels. Confirm your bill reflects the current compression.
Practical math for a Texas business owner: rent a $500K commercial space. Property tax burden falls on the landlord but flows through to your rent as a triple-net charge or factored into base rent. Effectively you’re paying ~2.5% of $500K = $12.5K per year of property tax indirectly. The franchise tax on a $1.5M-revenue business might be zero. Property tax on the real estate where the business operates is real cost.
Owners often discover that Texas’s “no income tax” advantage gets partly eaten by property tax exposure. Run the comparison with the specific assets and revenue numbers, not the headline.
Tax deferral options for property tax: Texas allows over-65 homeowners and disabled homeowners to defer property tax payment until the property changes hands. Interest accrues at a low rate (5% under recent law). Useful for retirees on fixed incomes.
Tax loans: a regulated industry in Texas where private lenders pay your property tax bill and you repay them on installment with interest. Rates run 10% to 18%. Usually a bad deal compared to a HELOC or other secured borrowing, but available if you’re cash-constrained.
Property tax payments are deductible federally as state and local taxes (SALT), but the TCJA $40,000 SALT cap limits the deduction for most owners. The cap is were extended through 2034 by the One Big Beautiful Bill Act unless extended. Pending legislation may modify. For Texas owners with $30K of property tax, the SALT cap captures only $10K of deduction — the other $20K is lost federally.
Comparing Texas’s property tax bite to high-income-tax states’ combined burden: a $1M home in Texas pays ~$25K of property tax. A $1M home in New Jersey pays ~$22K of property tax PLUS the homeowner’s NJ income tax. Texas comes out ahead on combined state burden only after factoring the absent income tax. The math depends on income level — high earners win big with Texas, low earners may break even or lose because property tax is a flat percentage of home value regardless of income.
Federal taxes don't change — and they're still the biggest piece
Moving to Texas eliminates state personal income tax. It doesn’t touch federal tax. The federal piece is bigger than any state piece for most owners.
Federal ordinary income tax brackets for 2026 projected: 10%, 12%, 22%, 24%, 32%, 35%, 37%. Top federal bracket starts at $626,350 single / $751,600 MFJ for 2025 (2026 amounts projected).
Self-employment tax: 15.3% on net earnings up to the Social Security wage base ($176,100 for 2026, projected ~$180K for 2026), then 2.9% Medicare above. Plus 0.9% Additional Medicare Tax above $200K single / $250K MFJ. Sole proprietors and partnership partners pay this.
S-corp election: lets the owner-employee split income between W-2 wages (subject to FICA) and distributions (not subject to SE tax). Saves the 2.9% Medicare on the distribution portion plus the 12.4% Social Security on amounts above the wage base. Texas-specific note: S-corp election doesn’t change Texas franchise tax exposure. The entity still owes margin tax if revenue exceeds the threshold.
Federal payroll tax: applies to all wages regardless of state. FICA at 7.65% on the employee side, 7.65% match by the employer. Federal unemployment (FUTA) at 6% on first $7,000 of wages per employee, mostly offset by state unemployment credit.
State unemployment in Texas: Texas Workforce Commission (TWC) administers SUTA. New employers start at 2.7%. Experience-rated employers range from 0.25% to 6.25% based on benefit charges. Taxable wage base: $9,000 per employee (low compared to many states).
Federal income tax withholding from wages: same federal rules everywhere. Form W-4 from each employee, withholding tables in IRS Publication 15-T.
Texas has no state income tax withholding, no state W-4 equivalent, no state W-2 boxes for state wages. Payroll service vendors handle this differently from full-tax states. Some still ask for state tax setup options that don’t apply.
Estimated tax payments: federal Form 1040-ES quarterly. No state equivalent in Texas. For an owner moving from California or New York to Texas, this is real cash flow improvement — California requires quarterly estimated payments at 13.3% top rate, which is gone in Texas.
Federal estate tax: same rules everywhere. 2025 exemption $13.99 million per person, projected to stay around $14M for 2026 absent legislative change. The 2017 Tax Cuts and Jobs Act doubled the exemption is were extended through 2034 by the One Big Beautiful Bill Act, dropping the exemption to roughly $7M (inflation-adjusted) starting 2026 unless extended. Pending legislation may extend.
Texas has no state estate tax or inheritance tax. Repeal was completed in 2015. Moving to Texas to die saves the state estate tax burden in states like New York (16% top rate above $6.94M exemption) or Illinois (16% top rate above $4M exemption).
Strategic tax advisory for owners contemplating a Texas move should model federal plus state plus property plus payroll, not just the income tax line.
Qualified Business Income (QBI) deduction under §199A: 20% deduction for pass-through business income, applies federally. Texas owners benefit the same as anyone else. The QBI deduction has wage and property limitations for high earners — for the 2025 phaseout, it begins at $197,300 single / $394,600 MFJ. Above the phaseout, the deduction is limited based on W-2 wages paid and the unadjusted basis of qualified property.
Bonus depreciation: 60% for property placed in service in 2024, 40% for 2025, 20% for 2026, sunsetting unless extended. §179 expensing: $1.25M for 2024 with phaseout above $2.89M of total §179 purchases. Both work the same regardless of state.
R&D tax credit under §41: federal credit for qualified research expenditures. Texas has its own state-level R&D credit under Tax Code §171.651 — credit against franchise tax for qualified research conducted in Texas. Up to 5% of qualified Texas research expenditures exceeding the base amount. Stackable with the federal credit. Real money for tech-heavy or product-development businesses.
Federal estimated taxes: quarterly, due April 15, June 15, September 15, January 15. Form 1040-ES. Safe harbor: pay 110% of prior year’s tax (if AGI exceeded $150K) or 90% of current year’s tax. Texas owners no longer pay state estimated taxes but the federal piece continues.
Nexus — when Texas claims your business
Nexus is the connection that gives a state the right to impose tax. Texas has multiple nexus standards depending on the tax type.
Franchise tax nexus: any taxable entity “doing business” in Texas owes franchise tax. “Doing business” includes physical presence (office, employees, inventory), economic activity (revenue from Texas customers above thresholds), and economic nexus standards adopted in the post-Wayfair era.
Economic nexus for franchise tax: out-of-state entities with Texas gross receipts of $500,000 or more in a 12-month period are deemed to have nexus. Adopted via Comptroller Rule 3.586 in 2019.
This catches remote-services businesses. A Florida marketing firm with $700K of revenue from Texas clients has Texas franchise tax nexus even with no Texas employees and no Texas office. Files Form 05-158 annually.
Sales tax nexus: physical presence (employee in Texas, inventory in Texas warehouse, contractors providing services in Texas) creates nexus immediately. Economic nexus threshold is the same $500K. Marketplace facilitators relieve sellers who only sell through platforms.
Payroll tax nexus: a single employee working from Texas creates Texas payroll tax obligations. TWC registration, SUTA quarterly returns (Form C-3), federal payroll filings continue at the federal level.
Remote-work nexus exposure: as workers spread across states after 2020, businesses ended up with employees in many states they hadn’t planned for. Texas inbound: an employee moves from California to Texas, the employer has Texas payroll tax obligations starting on day one of Texas work. Need TWC registration and Texas W-2 reporting.
Reverse: a Texas employer with employees who remain in California, New York, or Illinois has obligations in those states. Texas being a no-tax state for personal income doesn’t relieve the employer from withholding, SUTA, and possibly corporate income tax obligations in employee states.
Apportionment for multi-state entities: if you have operations in Texas plus another state, you apportion. Texas uses single-factor sales apportionment — only sales sourced to Texas matter for the margin tax calculation. Many states use three-factor (property, payroll, sales) or two-factor formulas. Texas’s single-sales-factor approach favors businesses with property and payroll in Texas selling to out-of-state customers.
Throwback rule: Texas does not have a throwback rule for sales to states where the seller lacks nexus. Some businesses get a “nowhere income” benefit — sales to states where the seller has no nexus simply don’t get sourced anywhere for those states, but Texas single-factor sales sourcing assigns those sales out of Texas only if delivered out of state.
Public Law 86-272 protection: federal statute (1959) that shields out-of-state sellers of tangible personal property from state income tax when their only activity in the state is solicitation of orders. Doesn’t protect against sales tax (post-Wayfair) or franchise tax in many states. Texas’s margin tax is treated by Texas as a tax on the privilege of doing business, not an income tax — Texas asserts that PL 86-272 doesn’t shield against margin tax for entities meeting Texas economic nexus.
MTC (Multistate Tax Commission) compliance positions: the MTC publishes positions on nexus and apportionment. Texas isn’t a full MTC member but participates in some MTC programs. Out-of-state businesses with multi-state exposure should run their facts against MTC positions even when the state hasn’t formally adopted them.
Nexus questionnaires: some states (including Texas) send nexus questionnaires to out-of-state businesses identified through 1099 data, federal data sharing, third-party tipping, or competitor reports. Respond carefully — admissions in a questionnaire become evidence for retroactive nexus assertions.
Entity choice for Texas businesses
Default starting point: LLC taxed as S-corp for active operating businesses. Single-member LLC taxed as disregarded entity for real estate or passive holdings. C-corp only when you have specific reasons (VC investment, employee stock options at scale, intent to IPO).
Texas LLC formation: file Certificate of Formation (Form 205) with Texas Secretary of State. Filing fee $300. Registered agent required (can be the owner). Operating agreement not filed publicly but legally important.
Texas LLC franchise tax: yes, owes franchise tax (if revenue exceeds threshold). The LLC is a “taxable entity” under Chapter 171.
Texas corporation: filed via Certificate of Formation (Form 201). Same $300 fee. Subject to franchise tax. May elect S-corp federal treatment.
Series LLC: Texas allows series LLCs under Chapter 101 of the Business Organizations Code. Useful for real estate investors holding multiple properties — each series isolates liability. Tax treatment: each series files separately for federal purposes if treated as separate entities; franchise tax treatment varies based on the structure adopted.
Partnership: general partnership of natural persons exempt from franchise tax. Limited partnerships and LLPs are taxable entities. Most active operating businesses don’t choose partnership form because of liability exposure.
Sole proprietorship: simplest. Texas has no personal income tax so no state tax on profits. Self-employment tax federal. No franchise tax. The trade-off: no liability protection. For high-risk activities, the LLC liability shield justifies the franchise tax exposure.
Professional Limited Liability Company (PLLC) and Professional Corporation (PC): required form for licensed professionals — doctors, lawyers, CPAs, architects, engineers. Same franchise tax exposure.
Converting from another state: if you have a Delaware LLC operating in Texas, you can convert to a Texas LLC under Chapter 10 of the BOC. The conversion is generally tax-neutral if structured correctly. Alternative: register the Delaware LLC to do business in Texas (foreign LLC registration, Form 304, $750 fee). Foreign LLCs owe Texas franchise tax on Texas-sourced revenue.
Moving an S-corp from New York or California to Texas: typically done by forming a Texas entity and merging the prior-state entity into the Texas entity, or by domestication if the prior state allows. Tax treatment: §368(a)(1)(F) reorganization if structured properly — same entity for federal purposes, just a new state of organization. No federal tax consequences. State consequences depend on the prior state’s exit rules.
California in particular extracts a fee on departing entities. California’s $800 minimum franchise tax owed for any partial year the entity was a California entity, plus potential apportionment-based tax on built-in gains in California-source assets. Plan the exit timing.
Business management work for new Texas entities includes formation, registered agent setup, EIN application, sales tax permit if applicable, TWC registration, opening Texas bank accounts, and the first-year franchise tax return.
Public benefit corporations and B Corps: Texas allows public benefit corporations under BOC §21.951+. Useful for mission-driven businesses that want both profit and stated public benefit purposes. Tax treatment is the same as a regular corporation.
Holding company structures: Texas LLC as the holding company with operating subsidiaries (LLCs or corps) below. Useful for real estate portfolios, multi-business owners, or asset-protection-focused structures. Each subsidiary owes its own franchise tax (or no-tax-due return if under threshold) unless they’re combined-reporting affiliates.
Asset protection in Texas: Texas has strong homestead protection — the homestead is largely protected from creditors (with exceptions for IRS, mortgage liens, mechanic’s liens, and a few other items). Up to 10 acres in cities, 100 acres in rural areas (200 acres for families). Strong protection of retirement accounts, qualified plans, and IRA assets. Charging order protection for LLC interests under BOC §101.112 — judgment creditors can get a charging order but cannot force liquidation of the LLC.
Texas series LLC for real estate: each property in a separate series, isolating liability per property. Filing: a single Texas series LLC structure with multiple internal series. Federal tax election can elect each series as a separate disregarded entity, partnership, or corporation. The state-level structure is one entity for franchise tax purposes (mostly) but liability segregation is at the series level.
Common mistakes when moving a business to Texas
Pattern after pattern from owners who moved without planning:
1. Keeping the prior state’s apartment or house “just in case.” New York and California both treat a maintained dwelling as a major residency indicator. Even if you moved your business, your personal residency might not have moved. Audit follows.
2. Not filing a final part-year resident return in the prior state. New York Form IT-203 for part-year residents. California Form 540NR. Illinois Form IL-1040 Schedule NR. Missing these signals you didn’t formally exit.
3. Texas franchise tax sticker shock. Owners assume “no income tax” means “no state tax.” Then their first margin tax return shows $15K to $30K of franchise tax. Plan for it.
4. Ignoring property tax. Buying a Texas home and rolling into a Texas commercial real estate purchase without modeling property tax cash flow. A $3M warehouse in Harris County pays $75K to $90K of property tax per year.
5. Not filing the homestead exemption. Free exemption that saves real money on the residence. Owners forget to file by April 30 of the year after moving in.
6. Operating multiple Texas LLCs without combined reporting analysis. Affiliated entities sharing common control may be subject to combined reporting on franchise tax under Texas Tax Code §171.1014. Failing to combine creates risk of Comptroller audit adjustments.
7. Continuing payroll for remote employees in high-tax states. The Texas employer often forgets that an employee in California means California withholding, CA SUTA registration, and California Form 540 filing exposure for the employee. The business moved but the workforce didn’t.
8. Not registering for Texas sales tax permit before first taxable sale. The Comptroller’s penalty regime is forgiving for first-time registrants who come forward voluntarily but harsh for non-filers caught in an audit.
9. Treating Texas as if California-residency-audit rules don’t apply going the other direction. If you bought a California vacation house after moving to Texas, the FTB still wants to know about it. Filing a California Form 540NR for the year of California-source income from that property keeps the door closed.
10. Failing to model the 5-year true-up. Texas franchise tax is a low rate but it’s not zero. Run the 5-year projection. Compare to your prior state’s 5-year projection. Quantify the savings (or non-savings).
11. Forgetting Federal Beneficial Ownership Information (BOI) reporting under the Corporate Transparency Act. New entities formed in 2024 or later must file the FinCEN BOI report within 30 days of formation. Existing entities (pre-2024) had until January 1, 2025. Updates required within 30 days of ownership/control changes. Penalties: $500/day plus criminal exposure.
12. Not understanding Texas’s lack of a state-level workers’ compensation requirement. Texas is the only US state where workers’ comp is optional for private employers. Most Texas employers carry it anyway (because the alternative — non-subscriber status — exposes them to direct lawsuits without the workers’ comp shield). Owners moving from mandatory-coverage states sometimes try to drop coverage and learn the hard way.
13. Mishandling Texas margin tax on professional service entities. Lawyers, accountants, doctors, architects operating as PLLCs or PCs in Texas owe franchise tax above the threshold. The compensation deduction works the same way, and high-revenue professional firms often face margin tax in the $20K to $100K range. Plan for it.
Severance pay and final-year compensation timing
Moving to Texas mid-year creates timing questions around bonuses, deferred compensation, RSU vests, and severance.
Severance from a New York or California employer paid after the move: depends on what state the income is “sourced” to. Sourcing rules look at where the work was performed that generated the compensation, not where the worker resides when paid.
Severance paid for past services performed in California: California-source income, taxable in California, withholding required by California-resident-rate withholding. Even if you now live in Texas. Cal. Rev. & Tax. Code §17041 and §17951.
Deferred compensation paid after relocation: 4 U.S.C. §114 (federal Source Tax Act of 1996) limits states from taxing certain retirement income paid to nonresidents. Qualified plans (401(k), pension, profit-sharing) cannot be taxed by the source state once you’re a nonresident. Non-qualified deferred comp may be taxable by the source state under certain conditions.
RSU vests after relocation: tax sourcing follows the work-period during which the RSUs were earned. Grant-to-vest period proration. If you worked 60% of the grant-to-vest period in California and 40% in Texas, 60% of the vest-date FMV is California-source income.
Bonus paid after relocation for prior-year work: sourced to where work was performed. A New York bonus paid in March 2026 for 2025 work performed in New York is fully New York-source income. New York will tax it.
Practical sequence for the year of move: file Form IT-203 (NY part-year resident) or Form 540NR (CA part-year resident) reporting the income sourced to the prior state. File no return in Texas (none required). Reconcile with the federal Form 1040 which captures all income for the full year.
Withholding: ask the prior employer to switch withholding to your Texas address after the move. Federal withholding continues based on Form W-4. State withholding for the prior state should stop on income sourced to the new state. State withholding for the prior state continues on income sourced to that state (severance, deferred comp, RSU vests for prior-state work periods).
If you’re the business owner moving an S-corp to Texas mid-year: the S-corp’s apportioned income for the months operating in the prior state will be taxed there. The owner picks up the K-1 income in the year-of-receipt under federal rules; state allocation follows the apportionment work. Get the apportionment numbers right or face an audit.
Stock option exercises: ISOs exercised after the move with strike date and grant date both in the prior state are typically sourced to the prior state. NSOs similar — the spread at exercise is sourced to where the work was performed. Plan exercises around the move date.
Capital gains on stock sold after the move (long-term holding): if you’ve actually established Texas residency before the sale, gain is allocated to Texas (no state tax). California has tried in the past to claim post-move capital gains on California stocks but the legal authority is thin. The bigger risk is California arguing you never actually changed residency.
Sale of a business after relocation: if you sell your prior-state business after moving to Texas, the prior state will source the gain based on where the business operated. New York treats sale of business interests as New York-source income to the extent the underlying business was New York-source. California similarly. The texas no state tax business owners guide framework doesn’t shield this — you need to plan the business sale timing relative to the residency change AND the apportionment history of the business.
Installment sales after relocation: if you sell a business on installment terms, each installment payment is sourced based on where the business operated when the sale occurred, not where you live when the payment arrives. This is the trap that catches sellers who try to defer recognition into post-move years.
§1202 qualified small business stock: federal exclusion of up to $10M of gain on QSBS. Same treatment regardless of state. Texas residents pay zero state tax on the federally-excluded gain because Texas has no state income tax. California residents lose the exclusion at the state level for many years (CA didn’t conform until recently for some scenarios). Worth checking for any QSBS-eligible founders considering a state move.
What Texas owners should still file every year
Annual filing checklist for a Texas LLC or corporation:
1. Federal income tax return: Form 1120 for C-corps, Form 1120-S for S-corps, Form 1065 for partnerships, Schedule C for sole proprietors. Same as anywhere.
2. Texas franchise tax return: Form 05-158 (long form), Form 05-169 (EZ computation if revenue under $20M and certain conditions met), or Form 05-163 no-tax-due variant (now consolidated into the main return). Due May 15.
3. Public Information Report (PIR) or Ownership Information Report (OIR): filed with the franchise tax return. Lists officers, directors, ownership.
4. Federal Form 1099 series: 1099-NEC for independent contractors, 1099-MISC for rent and other payments. January 31 filing.
5. Federal Form W-2 for employees. January 31.
6. Federal Form 941 quarterly payroll: due April 30, July 31, October 31, January 31.
7. Federal Form 940 annual unemployment: due January 31.
8. Texas Workforce Commission Form C-3 quarterly contribution report: due April 30, July 31, October 31, January 31.
9. Texas Sales and Use Tax return: monthly, quarterly, or annual depending on liability. Form 01-114 or via Webfile.
10. County personal property rendition: due April 15 (or April 30 in some counties) to the county appraisal district.
11. Beneficial Ownership Information (BOI) report under the federal Corporate Transparency Act: filed with FinCEN. Updated when ownership or control changes.
12. Federal Form 1040 personal return: owners report S-corp K-1 income, W-2 wages, distributions. Texas has no personal return.
13. Sales tax in any state where you have nexus: nexus rules vary by state. Most use the post-Wayfair $100K or $500K thresholds.
14. Annual report to Texas Secretary of State: NOT required for Texas LLCs and corporations (Texas relies on the franchise tax filing as the annual update). Easy to miss this because most states require a separate annual report.
15. Registered agent maintenance: keep the registered agent current with the Secretary of State. Failure to maintain a registered agent leads to forfeiture of the entity’s right to do business.
16. Beneficial ownership at the county level: some counties want commercial property owners to file beneficial ownership updates separately from FinCEN. Check local rules.
17. Bookkeeping — needed monthly to support the franchise tax return computation and the federal returns. Texas doesn’t accept estimates or back-of-envelope reconstructions in an audit.
18. Texas Workers’ Compensation election or non-subscriber notice: if you carry workers’ comp, register with the Division of Workers’ Compensation. If you don’t (non-subscriber), file annual Form DWC-5 with TDI by April 30 disclosing non-subscriber status. Failure to file: $500 per day.
19. Comptroller webfile reconciliation: at year-end, log into the Texas Comptroller Webfile system to confirm all filings are current. Webfile shows franchise tax status, sales tax filings, and pending matters. Resolve any flags before May 15.
20. Individual tax preparation for the owner — combined with the entity return work. Texas residents file federal 1040 only (no state personal return), but the federal return has substantial complexity for business owners (Schedule C/K-1 reporting, AMT, QBI, NIIT, retirement contributions, etc.). Engage a tax preparer who understands the federal-only Texas filer profile.
Worked example: NYC consultant moves S-corp to Texas
Scenario: Sarah operates a marketing consultancy as an S-corp organized in New York. 2025 revenue $850K, net income $400K. She pays herself a $180K salary, takes $220K in distributions. New York City resident.
2025 tax burden:
– Federal income tax on $400K (assume MFJ with spouse income, top of 24% bracket): ~$56K
– New York State tax at 6.85%: ~$27K
– NYC tax at 3.876%: ~$15K
– Self-employment / FICA on $180K salary (employer + employee): ~$28K total ($14K each half)
– Total: ~$126K of combined tax
– Plus federal income tax on the $220K distribution and the $180K salary
Sarah’s all-in effective rate including FICA and S-corp distributions is roughly 31% on $400K of business profit plus FICA on the salary.
She moves to Austin, Texas on January 1, 2026. Forms a Texas LLC, elects S-corp federally, dissolves the New York S-corp.
2026 projected:
– Same $400K of net income from the business
– Federal income tax: ~$56K (same)
– New York State tax: $0 (no longer NY resident)
– NYC tax: $0
– FICA on $180K salary: ~$28K (same)
– Texas franchise tax on $850K revenue: $0 (below $2.47M threshold)
– Texas property tax on $750K home in Austin at 1.9% effective rate: $14,250
– Property tax was previously $12K on the NY apartment (NYC property tax is relatively low; the personal income tax was the big NY hit)
Net annual savings: ~$42K of NY+NYC state income tax saved, partially offset by ~$2K of additional property tax. Net ~$40K per year.
Plus avoided FTB if she’d moved to California instead: California’s top rate at 13.3% would have been catastrophic — Texas saves more relative to California than to New York.
5-year cumulative: ~$200K of tax savings.
Risks Sarah needs to manage: prove New York residency exit (sell the apartment or rent at FMV with arms-length tenant, change all addresses, register Texas-everywhere), avoid New York-source income that would pull her back partially (no NY clients to whom she travels regularly, no NY office), watch for NYC consequences if she returns for more than 184 days in any calendar year.
Implementation: form Texas LLC in December 2025, transfer assets and operations effective January 1, 2026, dissolve NY S-corp via Form CT-3-A final return and Form CT-1 dissolution. File NY part-year 2025 return capturing through-12/31/2025 activity (no part-year needed if she didn’t relocate before 1/1/2026). Texas franchise return due May 15, 2027 for the 2026 report year.
Tax strategy consulting for this kind of relocation runs $5K to $15K in advisory fees plus the routine compliance work. Net benefit dramatically positive when the move makes sense for non-tax reasons as well.
If the move is purely tax-motivated and the owner won’t actually live in Texas, don’t do it. Sham residency arrangements get caught and the back-taxes plus penalties exceed the projected savings.
Variant scenario: Sarah’s revenue grows to $3M by 2028. Now she’s over the Texas franchise tax threshold. Margin computation: $3M revenue minus compensation (assume $400K cap × 1 owner-employee + $200K of other wages = $600K compensation deduction). Margin = $2.4M. Tax at 0.75% = $18,000. Sarah’s Texas franchise tax is now meaningful but still substantially less than her NY+NYC tax burden would have been at $3M revenue. Net savings continue at roughly $25K to $30K per year vs staying in NYC.
Comparison to other no-state-tax destinations: Florida (no state income tax, no franchise tax for most service businesses but corporate income tax for C-corps), Tennessee (no personal income tax, modest franchise/excise tax on businesses), Nevada (no personal income tax, no corporate income tax, but commerce tax above $4M revenue). Texas’s mix sits between Florida (more favorable for small businesses) and Tennessee (similar to Texas but lower volumes). The right choice depends on business specifics — see our digital nomad tax guide for a broader comparison of remote-friendly tax jurisdictions.
When Texas isn’t the right move: if your business serves predominantly New York or California customers and you have substantial physical presence requirements (showroom, in-person services, fabricator employees), the operational disruption of relocating may exceed the tax savings. Run the analysis honestly.
Frequently Asked Questions
I moved from New York to Texas in October 2024 but still own my Manhattan condo and rent it out month-to-month. Am I a Texas resident under the texas no state tax business owners guide framework for 2026?
Maybe. The fact pattern you describe creates real residency risk for 2024 and possibly 2025 and 2026. Let me walk through what New York will look at and what would let you sleep at night.
New York domicile analysis. New York Tax Law §605(b)(1)(A) defines a resident as anyone domiciled in New York OR maintaining a permanent place of abode in New York and spending more than 183 days in New York during the tax year. The condo you still own is a permanent place of abode unless it’s been removed from your personal use. “Permanent place of abode” is a defined term under 20 NYCRR 105.20(e). It means a dwelling permanently maintained by the taxpayer that’s suitable for year-round living. Your month-to-month rental satisfies “permanently maintained” because you, as owner, can recall the unit on 30 days’ notice and resume occupancy. The auditor will treat the unit as your permanent place of abode unless you can prove it’s not.
Ways to prove the condo is NOT a permanent place of abode: (1) long-term lease to an arm’s-length tenant — at least 12 months, ideally longer; (2) the lease prohibits owner occupancy; (3) the lease includes the right of the tenant to renew or be reimbursed if the owner terminates; (4) the rental is at fair market value not a sweetheart deal to a family member; (5) the condo has been substantially altered so it’s not suitable for the owner’s lifestyle (e.g., owner removed personal belongings, no closet space for owner’s clothes, no garage space for owner’s vehicle).
Month-to-month tenancy fails this test. The tenant can be removed quickly, the unit remains under your control, and you can resume occupancy within weeks. The Tax Appeals Tribunal has consistently held that month-to-month arrangements don’t sever the permanent-place-of-abode connection.
If the condo is your permanent place of abode, the 183-day test applies for statutory residency. You’re a New York statutory resident for any year you spend more than 183 days in New York. “Day” counts even partial days, including travel days — a layover at JFK counts. October-through-December alone is around 92 days. Add any 2024 days in NY before October and you’re likely well over the threshold for 2024. You filed a 2024 NY full-year resident return correctly because you moved late in the year.
For 2025, the question is: how many days were you in New York during 2025? If you traveled back for client meetings, family visits, holidays, doctor appointments, anything totaling 184+ days, you’re a 2025 statutory resident. If you kept your time in NY under 184 days, you escape statutory residency but the abode-maintained-plus-some-days arrangement still triggers an audit.
Domicile separately: domicile is your permanent home, the place you intend to return to. New York will analyze the five primary domicile factors under the Department’s audit guidelines: (1) home, (2) active business involvement, (3) time, (4) items “near and dear,” (5) family connections. Each factor weighs separately. Your Manhattan condo being retained, your prior business connections, the time-spent question, location of personal items, and family ties (kids, parents) get evaluated. If three of five factors weigh New York, expect New York to claim you’re still domiciled there.
Moving the domicile to Texas requires affirmative steps: (a) sell or long-term-rent the condo (12+ month lease); (b) Texas driver’s license, voter registration, vehicle registration; (c) homestead exemption filed with your Texas county appraisal district; (d) updated addresses on all financial accounts, retirement accounts, professional licenses, insurance policies, subscriptions; (e) physical movement of personal items (furniture, art, photos) to Texas; (f) doctor, dentist, vet, accountant, attorney, financial advisor all in Texas; (g) clubs, religious affiliations, gym memberships in Texas not NY; (h) credit card statements showing pattern of life in Texas.
For the texas no state tax business owners guide question specifically: even if New York successfully claims you as a 2024 or 2025 NY resident, your Texas business income earned after October 2024 is partially New York taxable as a NY resident, partially Texas (no Texas income tax so no Texas claim). You’d file Form IT-203 part-year or IT-201 full-year resident depending on the residency conclusion. Worst case: NY catches the 2024 portion of business income that you didn’t apportion to NY.
The texas no state tax business owners guide framework helps for 2026 only if you’ve severed New York residency by 12/31/2025. Sell the condo or get a 12-month-plus arm’s-length lease in place before 2026 starts. Then 2026 becomes the year you can claim no NY state income tax. Even then, expect a residency audit from NY around 2027-2028 covering 2024-2026. Document everything.
What to do right now: (1) decide whether to keep the condo. If you don’t need it long-term, sell or 12-month-lease before 2026. (2) Get the Texas residency markers in place — driver’s license, voter, homestead — within 90 days of moving. (3) Track your NY days meticulously for 2025 and 2026 using a contemporaneous calendar with credit card statements and EZ-Pass records as backup. (4) File New York returns for 2024 (and 2025 if applicable) correctly — under-reporting will be caught when the cross-state matching catches your Texas address. (5) Engage New York counsel for the inevitable audit. The audit is when the records you maintained get tested. (6) Run our New York domicile test guide against your fact pattern.
The short answer: under the texas no state tax business owners guide framework, you’re not safely a Texas-only resident yet for 2024 or 2025. 2026 could work if you sever the condo issue before year-end 2025. Expect audit pressure regardless. The condo is the single biggest risk factor.
One additional consideration on the business side. If you operate an S-corp or LLC and continue to draw New York-source business income (clients, in-person meetings, contracts originated through New York connections), the FTB equivalent in New York — the Department of Taxation and Finance — will source that income to New York under §631 and §632 of the NY Tax Law. The texas no state tax business owners guide framework can save you state tax only on the Texas-source portion. New York-source income remains New York taxable regardless of your residency. Reorienting your client base toward Texas, Florida, and other locations or migrating to fully-remote work arrangements that don’t involve New York work locations matters for the long-term tax outcome.
Finally, consider engaging a New York-licensed CPA or tax attorney now, before any audit notice arrives. Pre-audit planning is dramatically cheaper than responding to a subpoena. Document your move, get the residency markers in place, and treat the next 2-3 years as the period when the audit will land. If you cooperate proactively and present clean documentation, the audit often concludes with a no-change or minor adjustment. If you stonewall or present sloppy records, the auditor will reconstruct your day-count using the worst plausible interpretation and assess back tax.
My LLC is in Delaware but I do all my work from Austin. Do I owe Texas franchise tax even though my entity isn't Texas-organized? The texas no state tax business owners guide says LLCs owe margin tax but what about foreign LLCs?
Yes. Texas franchise tax applies to any “taxable entity” doing business in Texas, regardless of state of formation. Your Delaware LLC operating from Austin is a foreign LLC doing business in Texas, which means it falls inside the franchise tax framework. The texas no state tax business owners guide treatment of foreign entities matches the treatment of Texas-formed entities — same tax, same rates, same returns.
The statutory authority: Texas Tax Code §171.001 imposes franchise tax on “each taxable entity that does business in this state or that is chartered or organized in this state.” Two independent triggers — Texas formation OR doing business in Texas. Your Delaware LLC fails the first but satisfies the second.
“Doing business” includes: maintaining an office in Texas, employing personnel in Texas, owning real or personal property in Texas, holding inventory in Texas, providing services in Texas. You working from Austin satisfies every prong.
Foreign LLC registration: under Texas Business Organizations Code §9.001, a foreign LLC transacting business in Texas must register with the Texas Secretary of State. Form 304 (Application for Registration of a Foreign Limited Liability Company). Filing fee $750. The registration must be in place before the entity transacts business — late registration is grounds for a $250 to $2,500 civil penalty plus retroactive franchise tax liability.
Failing to register means: (1) the LLC cannot maintain suit in Texas courts; (2) the LLC remains liable for franchise tax for all years it operated in Texas; (3) penalties and interest accumulate; (4) the LLC’s owners may be personally liable for tax debt under specific Texas Tax Code piercing provisions.
Franchise tax calculation: same as for a Texas LLC. Total revenue threshold of $2.47 million for no-tax-due reports. If revenue is below, file Form 05-158 with a no-tax-due indicator and the public information report. If revenue exceeds, compute margin and tax at 0.75% (or 0.375% for retail/wholesale).
Apportionment for the foreign LLC: only Texas-source revenue is included in the apportionment calculation. Texas uses single-factor sales apportionment under Tax Code §171.106. The Texas sales factor = Texas-source receipts / total receipts. Total revenue for margin purposes is the entity’s total revenue everywhere, then multiplied by the Texas sales factor.
What counts as Texas-source revenue: service receipts where the receipts-producing activity occurs in Texas; sale of tangible personal property where the property is delivered to a Texas customer; rental of real property in Texas; sales of intangibles where the receipts are derived from use of the intangible in Texas. The Comptroller’s sourcing rules (34 TAC §3.591) provide detail.
If you’re the sole employee and you provide services from Austin, your service receipts are Texas-source because the receipts-producing activity occurs in Texas. Even if your clients are in New York or California, the Texas sourcing rule looks to where you perform the service.
Multi-state activity: if you split your work between Austin and another state (or you have employees in multiple states), the apportionment factor reflects the split. Receipts from services performed partly in Texas and partly elsewhere are apportioned based on where the work was actually done (often time-based or cost-based).
The texas no state tax business owners guide implication: forming in Delaware to “avoid” Texas franchise tax doesn’t work. Delaware formation gives you potentially favorable corporate law (Chancery Court flexibility, more contractual freedom) but doesn’t shield you from Texas tax obligations when you operate in Texas.
Delaware advantages worth keeping: Court of Chancery jurisdiction for certain disputes, more favorable charging order provisions in some scenarios, default operating agreement provisions, certain anonymity if structured carefully (though FinCEN BOI reporting under the Corporate Transparency Act now requires beneficial ownership disclosure regardless of state).
Delaware downsides: $300 annual franchise tax (Delaware’s own franchise tax, separate from any income tax), $50 annual report fee, registered agent fee in Delaware ($100 to $300/year), foreign LLC registration in Texas ($750 plus $200 annual fee), Texas franchise tax compliance. You’re paying two states’ compliance costs for the benefit of one set of corporate law.
Consider converting to a Texas LLC: under Texas BOC Chapter 10, you can convert a foreign LLC to a Texas LLC. The conversion is generally tax-neutral at the federal level if structured correctly. You’d file Certificate of Conversion (Form 632) plus Certificate of Formation (Form 205). Total filing fees around $600. Eliminate the Delaware annual costs going forward.
Alternatively, dissolve the Delaware LLC and form a fresh Texas LLC. This is administratively simpler if you don’t have significant assets to transfer. Federal tax treatment: depending on structure, this might be a §708 partnership termination or a §351 contribution or a tax-free dissolution. Get specific advice based on the LLC’s structure (single-member vs multi-member, prior tax elections, asset basis profile).
For the franchise tax return itself: you have until May 15, 2026 to file the 2026 report for tax year 2025 activity. The texas no state tax business owners guide breakdown of computation options applies. Pick the LEAST of: (a) total revenue minus COGS; (b) total revenue minus compensation; (c) total revenue × 70%; (d) total revenue minus $1 million. For a single-owner Austin services LLC with $850K of revenue and $200K of owner salary, you’re under the $2.47M threshold so no tax due — file the no-tax-due report.
Don’t ignore the obligation. Texas Comptroller cross-matches federal data and state-level data. A Delaware LLC with a Texas address on its 1120-S or 1065 federal filing flags the Comptroller. Foreign LLCs not registered with the Texas SOS get caught regularly. The texas no state tax business owners guide answer: register, file, pay if owed, treat the Texas obligation like any other state obligation.
One more wrinkle on Delaware: if you formed the Delaware LLC for VC fundraising purposes (Delaware is the preferred jurisdiction for institutional investors), you may have legitimate reasons to stay Delaware. Venture-backed startups generally keep Delaware formation through the life of the company because investor preferences and Series-A documentation expect Delaware Court of Chancery jurisdiction. In that case, register as a foreign LLC in Texas, accept the dual-state cost, and continue Delaware formation for the investor-facing reasons.
If your LLC is not VC-backed and you have no specific Delaware-law reason to keep the Delaware entity, conversion to Texas saves the ongoing dual-state compliance cost. For a one-person consultancy or freelance operation, Delaware adds cost without adding value. Texas formation is sufficient.
Delaware vs Wyoming vs Texas comparison for single-owner LLCs: Wyoming has lower annual fees ($60 annual report fee, no franchise tax, no corporate income tax). Texas has $300 formation fee, no annual fee, franchise tax above $2.47M revenue. Delaware has $300 formation fee, $300 annual franchise tax, no state income tax if not operating in Delaware. For a Texas-resident owner operating in Texas, Texas formation is usually cheapest. The Wyoming benefits don’t transfer to a Texas-operating LLC because Texas still owns the franchise tax obligation on the Texas operations.
Last point: if you’re considering forming in Delaware specifically to remain anonymous, that no longer works under the federal Corporate Transparency Act. FinCEN Beneficial Ownership Information (BOI) reporting requires every domestic and foreign LLC to disclose beneficial owners (25%+ ownership or substantial control) to FinCEN. Delaware’s historical anonymity advantage is gone at the federal level. For state-level anonymity, Wyoming and New Mexico still offer some protection (no public ownership disclosure in state filings), but FinCEN now sees everything regardless.
I run a Texas LLC selling Shopify products to customers nationwide. The texas no state tax business owners guide mentioned franchise tax but my revenue is only $1.8M. Do I owe any state taxes at all, and what about all the other states where my customers live?
At $1.8M of revenue, your Texas franchise tax is zero because you’re below the $2.47M threshold. The texas no state tax business owners guide treatment is simple for sub-threshold filers — file the no-tax-due return, file the public information report, pay nothing. But your Shopify business creates 50-state exposure that probably matters more than the Texas piece.
Texas franchise tax: with $1.8M revenue, file Form 05-158 with the no-tax-due selection and Form 05-102 Public Information Report. No tax. No payment. Due May 15 annually. Don’t skip it — failure to file the no-tax-due report still triggers $50 minimum penalty and risks forfeiture of the entity’s right to transact business if missed for two consecutive years.
Texas sales tax: if you ship product to Texas customers, you owe Texas sales tax on those sales. Threshold for economic nexus is automatic for a Texas-based entity (you have physical presence — your office, inventory if any, employees). Register for a Texas Sales and Use Tax Permit through the Comptroller’s Webfile portal. No fee. File monthly, quarterly, or annually depending on volume.
For your Texas customers: collect 6.25% state sales tax plus local tax (up to 2%) for a combined rate that ranges 6.25% to 8.25%. Use Texas’s destination-sourcing rules — the tax rate is set by the location of the customer, not your shipping point.
Other states (the bigger issue): every state where you have economic nexus expects you to register, collect tax, and remit. Post-Wayfair (the 2018 Supreme Court decision in South Dakota v. Wayfair), states adopted economic nexus thresholds. Common thresholds: $100,000 in state sales, or 200 separate transactions. Some states use only one threshold; some use both.
For a $1.8M-revenue Shopify business with national customer base, you likely cross the threshold in California, New York, Florida, Texas, and possibly 10-15 other states.
Shopify partial relief: if you sell through Shopify Markets or use Shopify’s tax automation tools (Shopify Tax), some of the calculation and registration burden is handled. But registration in each state is still your responsibility. Shopify can compute tax accurately only if you’ve registered in the state and configured the system.
Marketplace facilitator laws: if you sell on Amazon, Etsy, eBay, or Walmart Marketplace, those platforms collect and remit on your behalf in nearly every state. Pure-Shopify sales don’t get that treatment because Shopify is a SaaS platform, not a marketplace facilitator (it doesn’t take title to goods or process payments to you from the customer — it’s just the storefront software).
Sales tax registration approach: identify states where your sales exceed the economic nexus threshold. For each, register for a sales tax permit, configure Shopify or your tax software (TaxJar, Avalara, etc.) for that state, file periodic returns. Compliance cost: usually $1,000-$3,000 per state in software fees plus filing prep, totaling $20K to $50K annually for a multi-state e-commerce business.
Income tax nexus in other states: separate analysis from sales tax. Income tax nexus generally requires physical presence (employees, property, contractors) under Public Law 86-272 for sales of tangible personal property. PL 86-272 is a federal statute that protects out-of-state sellers from state income tax when their only activity in the state is solicitation of orders for tangible personal property sold from out-of-state.
If you ship from a Texas warehouse to customers in California: PL 86-272 protects you from California corporate income tax (Franchise Tax Board) IF your only California activity is solicitation. Soliciting orders is protected; non-solicitation activity (after-sale support, returns processing, training customers) is not protected.
Most pure Shopify sellers with no physical presence outside their home state are PL 86-272 protected for income tax purposes in customer states — they owe income tax only at home. Sales tax post-Wayfair has no PL 86-272 protection. Sales tax exposure exists in every state where you cross the threshold.
For your $1.8M Texas Shopify operation: Texas income tax — zero (no personal income tax, franchise tax under threshold). Federal income tax — yes, on your share of S-corp K-1 income. Other states’ income tax — likely zero under PL 86-272 if you’re shipping from Texas and just selling product. Sales tax — owed in every state where you cross economic nexus.
The texas no state tax business owners guide takeaway: “Texas no state tax” is only true for personal income tax. Multi-state sales tax compliance is separately burdensome and unrelated to Texas’s lack of income tax. Plan and budget for it.
Compliance cost framework: at $1.8M revenue, expect $25K to $50K annually of multi-state sales tax compliance cost (software + filings + occasional audits). Approximately 1.5% to 3% of revenue, hitting net income directly.
Ways to limit exposure: (1) Sell more on Amazon/Etsy/Walmart marketplaces and less on direct Shopify — marketplace facilitator laws shift compliance burden to the platform. (2) Use a third-party logistics provider in only one state so you don’t create physical presence elsewhere. (3) Use a sales tax automation service (Avalara, TaxJar, Sovos) to handle multi-state filings. (4) Voluntarily register only in states where you’ve definitively crossed the threshold, not preemptively in all 50.
Don’t ignore the multi-state sales tax obligation. State enforcement is improving. The Streamlined Sales and Use Tax Agreement states share data. California, New York, Texas, Florida, and other large states regularly audit out-of-state sellers identified through Shopify, PayPal, Stripe, and Amazon Seller Central data.
Documentation: Shopify export of sales by state, transaction count by state, applicable rate, tax collected. Reconcile against state-by-state filings. Keep 4 to 7 years depending on the state’s audit lookback period (Texas is 4 years, California is 4 years, New York is 3 years for assessed taxes).
For your specific situation, the texas no state tax business owners guide answer is: Texas franchise tax is zero for you. Texas sales tax owed on Texas customer sales. Federal income tax owed by you personally on S-corp K-1 income. Other-state income tax usually zero (PL 86-272). Other-state sales tax owed wherever economic nexus exists. The compliance burden is mostly outside Texas.
Proactive registration vs reactive: some Shopify sellers wait until a state catches them, then register and pay back-taxes with penalties. The math: 4-year back-tax exposure plus 25% to 50% penalties plus interest. For a state where you’d owe ~$15K of annual sales tax, the back-tax exposure could be $60K plus $20K of penalties plus interest. Compare to upfront registration cost of maybe $500. Register proactively where you cross thresholds.
One final note on the texas no state tax business owners guide framework: Texas itself doesn’t require you to register with the Comptroller until you have nexus. For a Shopify seller in Texas, that means register for the sales tax permit before your first Texas customer sale. The franchise tax registration happens automatically when you formed your Texas LLC. Annual filings reconcile both.
I'm a contractor who moved my truck and tools to Texas in May 2024 but my main jobs are still in Louisiana. Does the texas no state tax business owners guide save me money or do I still pay Louisiana tax on those jobs?
Louisiana will tax the income you earned from Louisiana jobs regardless of your Texas residency. The texas no state tax business owners guide framework saves you Louisiana tax only on income that’s NOT Louisiana-source. Let me unpack the rules.
Louisiana sourcing for contractor income. La. R.S. 47:241 and 47:243 source income to Louisiana based on where the work was performed. A contractor’s labor performed at a Louisiana job site is Louisiana-source income, taxable in Louisiana regardless of the contractor’s state of residence.
Louisiana nonresident income tax: contractors physically working in Louisiana owe Louisiana income tax on the Louisiana-source portion of their net income. File Louisiana Form IT-540B (Nonresident and Part-Year Resident Return). Louisiana tax brackets for 2024: 1.85% on first $12,500 single, 3.50% on next $37,500, 4.25% on amounts above $50,000. Top rate is 4.25%, lower than many states but not zero.
Apportionment for contractors: if you have a single-state operation (all work in Louisiana), no apportionment — 100% of net income is Louisiana-source. If you split work between Louisiana and Texas, apportion based on where the work was performed.
The texas no state tax business owners guide doesn’t override Louisiana’s right to tax Louisiana-source income. Texas-source income (your Texas-based jobs, your work performed in Texas) is not taxed by Louisiana and not taxed by Texas (because Texas has no personal income tax). That’s the savings. Income earned working in Texas is tax-free at the state level.
Moving the truck and tools to Texas helps establish Texas residency but doesn’t change Louisiana sourcing of Louisiana-job income.
What changes with your Texas residency:
1. Your home-state personal income tax: zero in Texas. Previously, if Louisiana-resident, all of your income (Louisiana and other states) was taxable in Louisiana with a credit for tax paid to other states. Now Texas is your home state, no home-state tax.
2. Tax on Louisiana-source income: still 1.85% to 4.25% Louisiana nonresident tax. You file Form IT-540B reporting only the Louisiana-source portion of net income.
3. Tax on Texas-source income: zero. Texas has no state income tax. Texas franchise tax may apply if your business entity exceeds $2.47M total revenue, but for a small contractor that’s unlikely.
4. Tax on income from third states (Mississippi, Alabama, Texas Gulf jobs, etc.): each state’s nonresident rules apply. Mississippi and Alabama both have nonresident income tax. Plan so.
For 2024 (your transition year), file:
– Louisiana Form IT-540B reporting Louisiana-source income for the part of the year you were a Louisiana resident PLUS Louisiana-source income for the rest of the year as a nonresident – Alternatively, Louisiana Form IT-540 (resident return) for part-year Louisiana residency if Louisiana classifies you as part-year resident – Federal Form 1040 reporting all income everywhere – No Texas return (none required)
2025 going forward (assuming you’ve established Texas residency and your only Louisiana connection is the work):
– Louisiana Form IT-540B reporting Louisiana-source income only – Federal Form 1040 – No Texas return
Documentation needed for the Louisiana sourcing:
– Job site location for each project (Louisiana parish, GPS coordinates if needed) – Days worked in Louisiana vs days worked in Texas vs days worked in other states – Receipts paid by Louisiana customers vs other-state customers – Mileage logs showing travel patterns – Bank deposit records by job – Per-state breakdown of revenue, expenses, and net profit
If you commingle income (e.g., you bid a contract that covers both Louisiana and Mississippi work, you don’t separately allocate), Louisiana will use a default apportionment (often based on time spent in Louisiana).
LLC structure: if you operate as an LLC taxed as S-corp, each state taxes its share of the S-corp income. Same sourcing rules apply at the entity level. Texas LLC operating in Louisiana: the LLC files a Louisiana Form CIFT-620 (corporate income tax return for entities, even pass-throughs in some cases) or a Form IT-565 (composite partnership return) reporting Louisiana-source income. The owner picks up the K-1 income on their personal return.
Louisiana withholding by Louisiana customers: under La. R.S. 47:295, payments to nonresident contractors for Louisiana-source services are subject to withholding by the payor at 6% of gross payments unless the contractor has registered with the Louisiana Department of Revenue. Most Louisiana commercial customers handle this automatically. Register with LDOR to provide a withholding exemption certificate if you’re already filing Louisiana returns.
Self-employment tax: federal, applies regardless of state. 15.3% on net earnings up to the Social Security wage base, 2.9% Medicare above. Plus 0.9% Additional Medicare Tax above $200K single / $250K MFJ. Texas residency doesn’t change SE tax exposure.
Material purchases sales tax: if you buy materials in Louisiana for Louisiana jobs, you owe Louisiana sales tax (or you owe Louisiana use tax if you bought elsewhere and consumed in Louisiana). Texas residency doesn’t help.
Material purchases in Texas for Louisiana jobs: Texas sales tax owed on the Texas purchase (6.25% state + local). Louisiana use tax owed when the materials are consumed in Louisiana, with credit for the Texas sales tax already paid. Net result: usually you pay one state’s tax or the other, not both.
Texas franchise tax: as a Texas contractor LLC, you owe Texas franchise tax if your total revenue exceeds $2.47M. Revenue from Louisiana jobs is included in total revenue at the federal definition level (gross income), then apportioned to Texas using Texas’s single-factor sales apportionment.
For the texas no state tax business owners guide breakdown of your tax savings: assume $300K of net income, 70% Louisiana-source and 30% Texas-source.
Prior year as Louisiana resident: – Federal income tax on $300K (MFJ, 24% bracket): ~$45K – Louisiana tax at top 4.25% on $300K: ~$12K (with brackets, slightly less) – FICA/SE tax: ~$30K – Total: ~$87K
Current year as Texas resident with same Louisiana-source income: – Federal: ~$45K (same) – Louisiana tax on $210K Louisiana-source income at 4.25%: ~$8.5K – Texas tax on $90K Texas-source income: $0 – FICA/SE: ~$30K – Total: ~$83K
Savings: ~$4K per year on this fact pattern. Smaller than people expect because Louisiana’s rate is low and Louisiana still taxes the majority of your income.
If you can shift more work to Texas-based projects (residential Houston-area jobs, etc.), the savings increase. Each $50K of income shifted from Louisiana-source to Texas-source saves ~$2K of Louisiana tax (4.25% rate).
If your work is heavily Louisiana-anchored (long-term contracts with Louisiana refineries, etc.), the Texas residency saves you the home-state baseline tax but Louisiana keeps the apportioned share. The texas no state tax business owners guide saves you something but not as much as a contractor who actually shifts the work to Texas. Plan based on where the work will actually be performed.
I'm a freelance software developer. The texas no state tax business owners guide framework says I'll save a lot moving from California, but what about California's exit tax and my deferred RSUs from my old W-2 job?
California doesn’t have an exit tax in the standard sense — no “tax on the right to leave” similar to AB 2088 (the proposed wealth tax that didn’t pass) or AB 310 (also failed). What California does have is a series of source rules that keep certain California-source income California-taxable after you move. Let me walk through what actually applies.
California source rules — the post-move tax exposure:
1. Wages for services performed in California: any wages you earned for work done in California while a California resident remain California-source income, even if paid to you after you’ve moved to Texas. Final paycheck issued after the move date for work performed in California = California-source. California Revenue and Taxation Code §17951 and Cal Code Regs §17951-5.
2. RSU vests for grants earned during California residency: this is the big one. RSUs granted while you worked in California, vesting after you move to Texas, are partially California-source. The sourcing follows the grant-to-vest period proration. If you worked the full grant-to-vest period (e.g., 4 years) entirely in California before moving, 100% of the vest-date FMV is California-source. If you worked 3 of 4 years in California and 1 year in Texas, 75% is California-source.
California Schedule R for nonresidents apportions the wage element of RSUs. FTB Publication 1004 walks through the calculation. The math: (CA work days during grant-to-vest period / total work days during grant-to-vest period) × vest-date FMV = California-source income.
3. NSOs (Non-Qualified Stock Options) exercised after the move: spread at exercise is wages. Sourced same as RSUs — proration based on the grant-to-exercise period work location.
4. ISOs exercised after the move: for regular tax, no income recognized at exercise. AMT may apply. If you eventually do a disqualifying disposition, the bargain element is ordinary income sourced to where the work was performed during grant-to-exercise. Long-term capital gain from qualifying ISO sales is sourced to your residence at sale.
5. Severance pay: California-source if paid for services performed in California. If you got severance for ending your California job, the FTB will tax it even after you move. Cal Code Regs §17951-5(b).
6. Deferred compensation under non-qualified plans: complex. Federal source tax act (4 U.S.C. §114) prohibits states from taxing retirement income (qualified plans, IRC §457(b) plans, certain other plans) of nonresidents. Non-qualified plans (most exec comp) may still be sourced to California for the years the deferral was earned.
7. Pension and qualified plan distributions: protected by 4 U.S.C. §114 — California cannot tax these after you become a nonresident. 401(k), traditional IRA, pension distributions all tax-free to California.
8. Capital gains on stock sold after the move: gain is sourced to your state of residence at sale, NOT to California even if the stock was acquired in California. California has tried to claim this in past audits but the legal authority is thin. Sell appreciated stock after firmly establishing Texas residency.
9. Real estate sales: California real estate gains remain California-source regardless of residency. If you sell your California home after moving, file Form 593 and pay California tax on the gain.
The practical sequence for your move:
1. Establish hard residency change date. Document moving expenses, lease in Texas, new utility accounts in Texas, license/voter/vehicle changes within 30 days, sale or long-term-lease of California dwelling.
2. Coordinate with your employer on RSU vesting and California withholding. Your old employer likely withholds California tax on RSU vests for the grant-to-vest CA period. The withholding goes on your Form 540NR (California Nonresident Return) where you reconcile the California-source portion.
3. File California Form 540NR for the year of move and every subsequent year you have California-source income (until RSUs fully vested or other sourcing tails fully reported).
4. Final California Form 540 (full-year resident return) for the partial-year period if you’re using the part-year resident framework.
5. Texas: no state return required. The texas no state tax business owners guide treatment for freelance software developers is straightforward — you owe federal income tax, federal SE tax, and Texas franchise tax (only if your LLC’s revenue exceeds $2.47M). No Texas personal income tax.
California residency audit risk: if you keep ANY California presence, expect an audit. The FTB is aggressive. Triggers include: California address on financial accounts, California driver’s license still active, California voter registration, California bank account with significant balance, California home retained, frequent California visits documented through credit card or travel records.
Seven-factor closer connection analysis: where you’re domiciled, time spent in each state, location of your home(s), family, employment/business, items you’d hate to lose, professional services. FTB Publication 1031.
If the FTB determines you didn’t actually change residency: California taxes 100% of your worldwide income at 1% to 13.3% California rates. The texas no state tax business owners guide savings evaporate plus penalties and interest accrue.
For your RSU situation specifically: assume $200K of RSU vests over the next 2 years for grants made when you were 100% in California. All $200K is California-source. California tax at top rate: 13.3% × $200K = $26,600. Plus federal tax (already owed regardless of state). The California portion of RSU income survives your move.
But your ongoing freelance software development income earned from Texas — California gets nothing. If you’re earning $300K of freelance income post-move: – Federal income tax (24% bracket MFJ): ~$72K – Federal SE tax: $30K (if structured as Schedule C/LLC sole prop) or saved partially via S-corp election – California tax: $0 (no California-source income from the freelance work) – Texas tax: $0 personal, $0 franchise (under threshold)
Savings vs being a California resident on the same $300K: California 13.3% top bracket would have been $39K of California tax. The texas no state tax business owners guide framework saves you ~$39K per year on the post-move freelance income.
Net over 3 years (with RSU tail decreasing each year): – Year 1: $39K freelance savings – $13K residual California RSU tax = $26K net benefit – Year 2: $39K freelance savings – $7K residual RSU tax = $32K net benefit – Year 3+: $39K freelance savings – $0 (RSUs fully vested) = $39K net benefit
Cumulative 5-year savings: ~$175K vs staying in California.
Watch-outs: (1) Don’t trigger California domicile reversal by maintaining a California “second home” pattern. (2) Don’t continue California-source freelance income — if you have California clients you visit monthly, the work performed during those visits is California-source and taxable. (3) Don’t time RSU vests strategically — the FTB pro-rates based on when the work was performed, not when you sell.
Reporting: California Form 540NR for each year with California-source income. Federal Form 1040 captures everything. Texas franchise tax return Form 05-158 if you have a Texas-organized entity.
Run our California residency audit guide for the specific audit checklist. Get a California-licensed CPA or attorney for the residency-audit defense work — the FTB’s aggressive posture means the audit is when the planning gets tested. The texas no state tax business owners guide framework works if you actually establish Texas residency rigorously and respect California’s source rules for the RSU tail.
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