Texas State Tax Updates for 2026: Franchise Tax, Property Exemptions, and More

Texas businesses will see significant relief in 2026 with new property tax exemptions, stable franchise tax rates, and an R&D exemption overhaul. For SMBs with 10-200 employees, these changes can save thousands annually—especially when combined with expert tax planning from TWPS.

1. Business Personal Property Tax Exemption Rises to $125,000

Under HB 9, the business personal property tax exemption increases to $125,000 in 2026, effectively eliminating the "inventory tax" for many Texas SMBs. This is a game-changer for manufacturers, retailers, and wholesalers with inventory or equipment under this threshold.

Example: A Dallas-based distributor with $100K in inventory previously paid ~$3,000 annually in property tax. In 2026, that's eliminated—freeing up capital for growth.

2. Franchise Tax Rates Remain Stable

Texas franchise tax rates remain stable for 2026-2027, with no-tax-due thresholds confirmed. This means predictability for businesses filing franchise reports and planning cash flow.

However, optimizing your entity structure (LLC vs. S-Corp vs. C-Corp) can still reduce your franchise tax burden. TWPS's corporate structuring services can help you choose the most tax-efficient setup.

3. Section 199A QBI Deduction Stays at 20%

The Qualified Business Income (QBI) deduction under §199A remains at 20% with higher income thresholds due to inflation. For Texas pass-through entities (LLCs, S-Corps, partnerships), this is a major ongoing benefit—potentially saving tens of thousands annually.

4. Sales Tax Collections Projected to Grow 9%

Sales tax collections are projected to grow 9% in 2026, impacting retail and e-commerce businesses. This growth reflects Texas's booming economy but also means stricter audits and compliance monitoring. Ensure your sales tax processes are up to date to avoid penalties.

5. R&D Exemption Overhaul Starts January 1, 2026

Texas's research and development (R&D) sales tax exemption undergoes a major overhaul on January 1, 2026. The new rules clarify qualifying activities and streamline the application process. If your business invests in R&D, this is a critical opportunity to reduce costs—TWPS can help you navigate the application and compliance requirements.

Long-Term Planning: Aligning with OBBBA's State Impacts

While federal tax changes from OBBBA primarily affect income taxes, they also influence state-level planning. For example, higher federal standard deductions may reduce your state property tax burden indirectly by lowering overall taxable income calculations.

TWPS integrates federal and state tax strategies to ensure you're capturing every available deduction and credit across both systems.

How TWPS Can Audit Your Setup for 15-40% Savings

At TWPS, our corporate structuring and tax strategies (starting at $1,500) include:

• Entity review and optimization (LLC/S-Corp/C-Corp)
• Tax-efficient compensation plan design
• Property tax exemption application assistance
• R&D exemption qualification and documentation
• Franchise tax minimization strategies
• QBI deduction maximization

Our Texas-licensed CPAs and attorneys ensure you're compliant while saving 15-40% annually. Schedule your free consultation today to see how we can optimize your 2026 tax position.