Start a business in Texas

Texas takes nothing from your profit. There is no personal income tax, so pass-through earnings from an LLC reach you untouched by the state, and no city, county or school district levies one either. That part of the reputation is entirely true and it is worth several thousand dollars a year against California or New York on the same income.

What Texas does instead is tax transactions and things. Sales tax reaches further into technology services than almost anywhere else, property tax reaches your equipment, and the payroll rules are unlike any other state's because coverage that is compulsory in forty-nine states is a choice here. None of that is on the front of the brochure.

Forming the company itself is covered elsewhere — the Texas LLC page has the $300 certificate of formation, the franchise tax threshold and the 15 May Public Information Report, which is the filing that quietly ends Texas companies, and the formation hub sets that $300 against the other forty-nine states. This page assumes the entity exists and asks what running it actually costs.

Texas does not tax services in general. It taxes an enumerated list of them, and two entries on that list — data processing services and information services — are broad enough to swallow most of what a modern software business sells. Web hosting, data storage, payroll processing, and most software delivered as a subscription rather than a disc all fall inside them.

The softener is Tax Code §151.351, which exempts 20% of the charge. So you do not collect 8.25% — you collect 8.25% on 80% of the invoice, which works out at 6.6% of the sticker price in a city charging the maximum combined rate. That 20% is why a Texas SaaS invoice never has a round tax line on it.

It cuts both ways, and the buying side is the one people forget. Your own hosting, your analytics tools, your outsourced payroll run — if the vendor is registered in Texas, those bills carry the same 6.6%, and unless you are reselling the service it is a cost, not something you recover. Budget software at roughly 7% more than the list price.

What stays untaxed matters just as much, because the line is not where people guess it is. Consulting, engineering, bookkeeping and tax preparation are outside the base even when a computer is the only tool used. A developer writing bespoke code to a client's specification is in a different position from a company selling seats on a platform, and which side of the line you sit on is worth settling with the Comptroller before your first invoice rather than after your first audit.

Texas is the only state in the country where workers' compensation is optional for most private employers. There is no employee threshold to cross, because there is no requirement to cross it. An employer that goes without is called a non-subscriber, and roughly a fifth of Texas employers are one.

This is presented as a saving, and premium-wise it is. But workers' compensation is a bargain, not a tax: the employer pays premiums, and in exchange the injured employee gets no-fault benefits and gives up the right to sue. Opt out of the premiums and you opt out of the protection on the other side of the bargain too. Labor Code §406.033 does that deliberately — a non-subscriber sued by an injured employee cannot argue contributory negligence, cannot argue assumption of risk, and cannot use the fellow-servant rule. The employee sues in district court and the employer's three usual defences are gone before the case starts.

For a two-person software company where the worst plausible injury is a bad back, non-subscription plus an occupational accident policy is a defensible choice a lot of people make. For anyone whose staff carry things, drive, climb or use machinery, the arithmetic is very different and the premium is buying something.

The exceptions are worth knowing before you assume the choice is yours. Governmental entities must carry coverage, and so must most contractors working on public building or public works projects — if you win a city or state contract, the option disappears with the contract, and it disappears whether or not you priced it in.

Unemployment tax is compulsory and the clock is short. You register with the Texas Workforce Commission within 10 days of becoming liable, and liability attaches once you pay $1,500 or more in total gross wages in a calendar quarter, or have at least one employee in 20 different weeks of a calendar year. Ten days is far tighter than the deadlines most states set, and the trigger is gross wages across everybody, so two part-timers at $800 a quarter each cross it.

The tax is charged on the first $9,000 of each employee's wages per year — one of the lower wage bases in the country, which keeps the annual cost per head modest once the rate is applied. The reporting is quarterly and runs through the Commission's employer portal.

So the honest summary of hiring in Texas: the insurance is optional and the tax registration is not, and it is the tax registration that has a ten-day deadline attached to it.

Texas funds local government from property, and property includes business personal property — furniture, computers, tools, inventory, the van. Your county, city and school district each tax it annually, and the way they find out what you own is a rendition filed with the county appraisal district by 15 April.

This used to be a genuine cost for small firms because the exemption was $2,500, which a single laptop and a desk could exceed. That changed on 1 January 2026: Proposition 9, approved by voters in November 2025, exempts the first $125,000 of business personal property. A small service business now owns nothing the county can charge for.

Whether a business below the new exemption still has to file the April rendition is a question for your county appraisal district rather than one to assume: the exemption is new this year and districts have not been uniform about it. Ask in March, not in May.

Every Texas entity files something with the Comptroller by 15 May. Below $2.65 million of annualised revenue there is no franchise tax and no franchise tax return — but the Public Information Report is still due, it is free, it takes five minutes, and forgetting it eventually forfeits your right to transact business in Texas and makes whoever runs the company personally liable for debts taken on afterwards. The full sequence, the penalties and the reinstatement route are on the Texas LLC page. The one-line version: set the reminder for 1 May and treat it as unmissable, because the fact that nothing is owed is exactly why people miss it.

$300 certificate of formation, $0 sales tax permit, no state licence, no unemployment tax until you hire. The variable is insurance: general liability for a small service firm, and — because workers' comp is optional — an occupational accident policy if you decide not to subscribe. Realistically that is $350–$1400, and the width of the range is almost entirely an insurance decision rather than a government one.

One timing note. The Secretary of State does not publish a standard turnaround for ordinary online filings, so plan in business days rather than hours. If a date genuinely matters — a lease, a bank appointment, a contract that needs the entity to exist — Texas Express has been fully rolled out since July 2026: $50 per document for standard expedited service, typically two to three business days; $500 per document for next business day; $750 per document for same day if the filing arrives before noon. Each is on top of the filing fee, and each is per document, so a formation plus an assumed name filing is two of them.