M&A Advisory in Texas

Texas imposes no personal income tax and no corporate income tax, constitutionally guaranteed under Art. VIII, §24. Texas also has no state-level capital gains tax. A Texas-resident seller realizing long-term capital gain pays only federal rates (0%/15%/20% plus 3.8% NIIT) with zero state tax — a 4-9 percentage-point advantage over high-tax states that on a $50M gain preserves $2M-$4.5M of additional after-tax proceeds. No Pass-Through Entity tax election is needed because there is no income tax to work around.

The Texas franchise tax is a privilege/margin tax on most Texas entities: 0.75% standard rate, 0.375% for retail/wholesale, $2.47M no-tax-due threshold for 2025 ($2.65M for 2026), and EZ Computation at 0.331% for entities with ≤$20M revenue. In an asset sale, net gain on capital assets is included in Texas gross receipts for apportionment. A final franchise tax report must be filed within 60 days of ceasing nexus. Voluntary-disclosure filing on rate-classification issues pre-signing regularly removes $500K-$1.5M of buyer holdback demand.

Because Texas has no personal or corporate income tax, state-level conformity to IRC Section 1202 is moot — there is no state income tax base from which to exclude QSBS gain. Federal QSBS benefits remain fully available: post-OBBBA, tiered exclusions (50% at 3 years / 75% at 4 / 100% at 5) with a $15M per-issuer cap and $75M gross-asset ceiling. Texas founders holding QSBS-eligible C-corp stock capture the full federal exclusion with no state clawback — making Texas one of the most efficient states in which to hold QSBS.

Because there is no state-level income tax, the stock-vs-asset decision in Texas is driven almost entirely by federal tax considerations and franchise tax mechanics. In an asset sale, net gain on capital asset sales is included in Texas gross receipts for apportionment under Rule 3.591 (amended; only net gains count per Hallmark Marketing v. Hegar). In a stock sale, the target entity does not recognize taxable revenue, but the buyer inherits all historical franchise tax liabilities — making a Comptroller Certificate of Account Status (Form 05-305) and clean franchise tax history essential diligence items.

Texas imposes no state estate tax, no inheritance tax, and no gift tax. Combined with the Texas homestead exemption (unlimited dollar value, up to 10 urban acres or 100/200 rural acres under the Texas Constitution) and strong creditor-protection statutes, Texas is one of the strongest jurisdictions for intergenerational wealth transfer. Pre-transaction planning with GRATs, IDGTs, and dynasty trusts faces only the federal estate tax layer (2026 exemption ~$15M per individual under OBBBA).

For Texas oil & gas businesses, Railroad Commission Form P-4 operator changes (30-90 days processing), P-5 financial assurance bonding, and TCEQ environmental permits run on timelines independent of the SPA closing. The prior operator remains legally responsible until RRC certification is received — a common source of escrow and indemnity disputes. TABC licenses are non-transferable; buyers file new applications (30-90 days). SB 1318 (effective Sept. 1, 2025) limits sale-of-business physician non-competes to a 5-mile geographic radius.