Texas Tax Planning & Business Advisory Services

Written by Dr. Pellumb Kabashi, DBA, MBA, CES, CFE, EA Founder, Tax Expert Today LLC · Tax advisors, enrolled agents, CPAs, and attorneys · Serving clients in all 50 states

Texas is one of only nine states with no income tax, and we help clients throughout Texas make the most of that advantage. Dr. Pellumb Kabashi leads a multidisciplinary team of tax advisors, enrolled agents, CPAs, and attorneys federally licensed to represent clients before the IRS in all 50 states. From Houston's energy sector to Austin's tech boom to San Antonio's diverse economy, we serve Texas businesses and individuals in all industries. Whether you're managing a franchise tax, navigating sales tax complexity, or moving to Texas from a high-tax state, we have the expertise to guide you.

Texas is one of only nine states with no income tax, and we help clients throughout Texas make the most of that advantage. Dr. Pellumb Kabashi leads a multidisciplinary team of tax advisors, enrolled agents, CPAs, and attorneys federally licensed to represent clients before the IRS in all 50 states. From Houston’s energy sector to Austin’s tech boom to San Antonio’s diverse economy, we serve Texas businesses and individuals in all industries. Whether you’re managing a franchise tax, navigating sales tax complexity, or moving to Texas from a high-tax state, we have the expertise to guide you.

Texas Franchise Tax and The No-Tax-Due Threshold

Texas has no state income tax, but it does impose a franchise tax (also called the margin tax) on most businesses. The franchise tax is 1 percent of gross revenue for retail and wholesale businesses, and 0.75 percent for other businesses. However, there’s a critical threshold: if your business has less than a certain amount of gross revenue in a calendar year, you owe no franchise tax.

For 2024, the no-tax-due threshold is $2.47 million in gross revenue. A business with $2.4 million in annual revenue owes zero franchise tax. A business with $2.5 million in revenue owes the franchise tax on the full amount (not just the excess). This threshold increases slightly each year, so it’s important to track it.

In our practice, we help business owners understand the franchise tax calculation and explore whether restructuring could reduce or eliminate the obligation. Some businesses use related-entity structures to stay below the threshold. Others accept the franchise tax as the cost of doing business in Texas, especially since the rate is relatively low. A high-revenue business in California might pay 13.3 percent state income tax; a Texas business pays 0.75 or 1 percent franchise tax. The Texas system, despite the franchise tax, is still favorable for many businesses.

Sales Tax Compliance and Multi-State Nexus

Texas sales tax is 6.25 percent at the state level. Cities and counties can add local sales tax of up to 2 percent, bringing the total to a maximum of 8.25 percent. Unlike income tax, sales tax applies statewide uniformly at the 6.25 percent rate, with variation only at the local level.

For businesses selling remotely (online, by phone, by mail), sales tax nexus and collection obligations are complex. Since the Supreme Court’s Wayfair decision, remote sellers must generally collect sales tax in states where they have sales and sufficient nexus. A Texas business selling to California customers must collect California sales tax. A California business selling to Texas customers must collect Texas sales tax.

We help Texas businesses understand their sales tax obligations. A business with customers across multiple states faces a complex compliance landscape. We also help service businesses, professional practices, and other non-retail entities understand whether sales tax applies to their specific activities. Some professional services are exempt; others are not. A business owner who misclassifies taxable services as exempt can face penalties and interest.

Business Entity Selection in a No-Income-Tax State

Because Texas has no state income tax, the traditional S-corp vs. LLC analysis is different than in states like California or New York. A service business owner in Texas can remain as an LLC taxed as a sole proprietorship or partnership and owe no state income tax on the business profit. In a high-tax state, that same owner might elect S-corp treatment to reduce self-employment tax.

We help Texas business owners evaluate whether an S-corp election makes sense. The primary advantage of an S-corp is federal self-employment tax savings, not state tax savings. If you’re spending money on payroll and compliance for an S-corp election, you want to make sure the federal self-employment tax savings justify the cost. For some business owners it does; for others, a simple LLC is more efficient.

For service professionals (accountants, attorneys, consultants), we often advise on the right entity structure given the pass-through business income (QBI) deduction, reasonable salary requirements for S-corp owners, and the franchise tax threshold. A business close to the franchise tax threshold may have different entity considerations than a business well above or well below it.

Oil, Gas, and Energy Income Planning

Texas is home to the Permian Basin and a significant portion of the United States’ energy production. Clients involved in oil and gas (mineral rights owners, royalty income recipients, drilling companies, service providers) face unique tax considerations that differ from general business taxation.

Royalty income from mineral rights is investment income, subject to federal tax but not state franchise tax (because it’s not business revenue). Depletion deductions allow owners to deduct a portion of their royalty income based on the depletion of the mineral reserve. The calculation is complex and changes based on commodity prices and production levels. We help mineral rights owners calculate their depletion allowance correctly and understand the tax impact of changes in oil and gas prices.

For drilling companies and energy service providers, the taxation is more straightforward (corporate or pass-through tax), but ancillary issues arise around Section 1231 property treatment, depreciation of drilling equipment, and recapture of deductions if property is sold. We also advise on tangible vs. intangible drilling costs, both of which have specific tax treatment. Clients with interests in multiple energy properties face added complexity if those properties are in different states with different tax regimes.

Property Tax Considerations and The Income Tax Tradeoff

While Texas has no state income tax, property taxes are significant. Texas property taxes are among the highest in the nation, and they fund local schools, counties, and municipalities. A homeowner in a nice Texas neighborhood may pay $10,000-$15,000 or more in annual property tax on a $500,000-$750,000 home.

For some high-earners, the tradeoff is favorable: no income tax offset by higher property tax is still a net win. For others, especially retirees on fixed incomes, high property tax is burdensome. We help clients understand their full tax picture, not just income tax. A retired couple moving from California (where they paid 9.3 percent income tax but had homestead property tax reductions) to Texas needs to understand the new property tax burden in full.

Some Texas homeowners can claim homestead exemptions, which reduce assessed value by up to $28,000 in most areas, or by a higher amount in rural areas or for disabled or elderly homeowners. Senior homeowners can also freeze their home’s assessed value at age 65, preventing further increases. These are valuable protections, and we help clients understand their eligibility and timing.

California to Texas Exit Planning

We regularly work with clients relocating from California to Texas, especially to Houston, Dallas, and Austin. These moves represent a significant tax opportunity, but they also require careful planning to avoid California’s aggressive residency audits.

California claims residency based on the “Statutory Residents” rule and its common-law residency rules. Even after moving to Texas, California may claim you’re a resident if you maintain a California home, have family in California, or conduct business in California. The state’s Franchise Tax Board (FTB) has a virtually unlimited audit window for residency disputes, meaning they can audit years of returns long after you’ve left.

We help California-to-Texas movers create a documented “departure plan.” This includes timing the physical move appropriately, selling or formally renting out California property, updating voter registration and driver’s license, establishing Texas domicile through continuous presence and business activity, and maintaining detailed records of severing California ties. For business owners, we advise on when and how to transfer operations or ownership interests from California to Texas. Timing the sale of a California business to occur after establishing Texas residency can result in significant tax savings.