A step-by-step checklist for registering, licensing and setting up taxes for a new small business in Texas.
Quick answer: To start a small business in Texas, choose a structure, file with the Texas Secretary of State if you form an LLC or corporation, get an EIN, and register for a sales and use tax permit if you sell taxable goods or services. A Texas LLC costs $300 to form. Texas has no personal income tax, but LLCs and corporations must file a franchise tax report each year, even if no tax is due.
Texas is one of the most popular states for new businesses. It has no personal state income tax, and most small firms owe no franchise tax because their revenue falls under the no-tax-due threshold.
The trade-off is that the paperwork has its own Texas rules, from assumed name filings to yearly franchise tax reports. This guide takes you through each step. Fees and thresholds below were correct when we checked, but always confirm them with the state before you file.
In this article
- What does it cost to start a business in Texas?
- What are the steps to start a small business in Texas?
- What taxes do Texas small businesses pay?
- What changes when you hire staff?
- What are the benefits and limits of starting in Texas?
- Frequently asked questions
- Final thoughts
What does it cost to start a business in Texas?
| Item | Cost | Who needs it |
|---|---|---|
| LLC Certificate of Formation (Form 205) | $300 | Anyone forming a Texas LLC |
| Assumed name certificate (state level) | $25 | Entities trading under another name |
| Sales and use tax permit | Free | Sellers of taxable goods or services |
| Franchise tax | $0 for most small firms | LLCs and corporations, but tax is due only above the threshold |
| EIN | Free | Most LLCs and all businesses with employees |
Sole proprietors and general partnerships using an assumed name usually file with their county clerk, and county fees vary. Local licenses, permits and insurance are extra.
What are the steps to start a small business in Texas?
1. Choose your business structure
Most small owners choose between a sole proprietorship and an LLC. A sole proprietorship has no state filing and no franchise tax, but no personal liability protection. An LLC adds protection for the $300 filing fee plus yearly reports. Read our guide to LLC vs sole proprietorship.
2. Pick and check your name
Search the Texas Secretary of State business records through SOSDirect to see whether the name is available. Then search the USPTO trademark database, as state approval does not protect you from trademark claims.
3. Register your business
LLCs file a Certificate of Formation (Form 205) with the Secretary of State. You must name a registered agent with a Texas address who accepts legal papers for the business.
Carlos starts a mobile auto detailing business in Houston. He forms an LLC online for $300 and names himself as registered agent. Because he markets the business as “Bayou Shine Detailing”, which differs from his LLC’s legal name, he also files an assumed name certificate for $25.
4. File an assumed name if needed
If you trade under any name other than your legal or registered name, Texas requires an assumed name certificate. Entities file with the Secretary of State, while sole proprietors and general partnerships usually file with their county clerk. See our guide on what a DBA is.
5. Get your EIN
Apply for a free Employer Identification Number on the IRS website. Our guide on how to get an EIN walks you through it.
6. Register for a sales and use tax permit
If you sell or lease taxable goods, or provide taxable services, register with the Texas Comptroller for a sales and use tax permit before you start selling. The permit is free. The state rate is 6.25%, and cities, counties and special districts can add up to 2% more, for a combined maximum of 8.25%.
7. Check local licenses and permits
Texas has no general state business license, but many trades need a state license, and cities may require permits, zoning approval or health inspections. Check with your city and county before you open.
8. Open a business bank account and get insured
Keep business money separate, especially if you have an LLC. Ask an insurance agent about liability cover for your trade.
Set a reminder for May 15 each year as soon as you form your LLC. Texas expects a franchise tax report from LLCs and corporations every year, even when no tax is due, and missing it can lead to penalties and the loss of good standing.
What taxes do Texas small businesses pay?
- No personal income tax: Texas does not tax individual income, so sole proprietors and LLC owners pay only federal income tax on profits.
- Franchise tax: LLCs and corporations must file each year. For 2026 reports, entities with annualized total revenue of $2.65 million or less generally owe no tax, but must still file the required information, including a Public Information Report.
- Sales and use tax: Collect it on taxable sales and file returns with the Comptroller on the schedule it assigns you.
- Federal taxes: You may owe self-employment tax and need to make quarterly estimated payments.
- Employer taxes: If you hire, register with the Texas Workforce Commission for state unemployment tax.
Priya runs a small online candle shop as a Texas LLC with $90,000 in yearly revenue. She owes no franchise tax because she is far below the threshold, but she still files her report and Public Information Report by May 15. She collects sales tax on orders shipped to Texas buyers.
Sole proprietorships and general partnerships owned by individuals are generally not subject to the franchise tax, which is one reason some very small Texas businesses stay unincorporated at first.
What changes when you hire staff?
- Register with the Texas Workforce Commission: You will need a state unemployment tax account once you meet its rules.
- Workers’ compensation is optional: Texas is unusual because most private employers can choose whether to carry it, but opting out has legal consequences and notice requirements.
- Federal payroll taxes: Withhold and pay federal income tax, Social Security and Medicare.
- New hire reporting: Report new employees to the state as required.
Ask an insurance agent or attorney before you decide on workers’ compensation, because employers without it lose some legal protections if an employee sues over a workplace injury.
What are the benefits and limits of starting in Texas?
- No personal income tax: Owners keep more of their profit at the state level.
- Low franchise tax burden for small firms: Most small businesses fall below the threshold.
- Higher sales tax rates: Combined rates can reach 8.25% in many areas.
- Yearly reports still apply: Even with no tax due, LLCs must file their franchise tax report each year.
This guide is general information, not legal or tax advice. A Texas accountant can confirm the rules for your exact business.
Search SOSDirect for your business name, then check the Texas Comptroller’s website to see whether your products or services are taxable. Those two checks will shape most of your first registrations.
Frequently asked questions
How much does it cost to start a business in Texas?
A sole proprietorship can start for very little. A Texas LLC costs $300 to form, plus $25 for a state assumed name certificate if needed.
Do I need a business license in Texas?
Texas has no general state business license, but some trades need state licenses, and cities may require permits.
Do Texas LLCs pay franchise tax?
They must file each year. For 2026 reports, most with annualized revenue of $2.65 million or less owe no tax.
Is a Texas sales tax permit free?
Yes. You register with the Texas Comptroller, and there is no fee for the permit.
Does Texas have state income tax?
No. Texas does not tax personal income, but businesses may owe franchise tax and must collect sales tax.
When is the Texas franchise tax report due?
The standard due date is May 15 each year.
Final Thoughts
- A Texas LLC costs $300 to form, and assumed names cost $25 at state level.
- Register for a free sales and use tax permit if you sell taxable items.
- File a franchise tax report every year by May 15, even if no tax is due.
- Check city and county rules, since Texas leaves many licenses to local governments.
Explore More on BTS Magazine
- How to Start a Small Business in Florida
- How to Start a Small Business in California
- How to Start a Small Business in Ohio
- LLC vs Sole Proprietorship: Which Is Right for You?
