What Houston Business Owners Must Know About the 2025 Texas Legislative Session Before 2026
The regular session ended June 2. The deadlines are still arriving. Here is what changed, what it costs you, and when you have to act.
The regular session ended June 2. The deadlines are still arriving. Here is what changed, what it costs you, and when you have to act.
The 89th Texas Legislature gaveled out on June 2, 2025, and the Capitol press corps moved on almost immediately. But for the owner of a construction subcontracting firm in the Energy Corridor, a restaurant group expanding into EaDo, or a commercial landlord managing office space in the Galleria, the session’s end wasn’t the finish line. It was the starting gun.
Multiple provisions took effect September 1, 2025. More arrive January 1, 2026. The last wave hits September 1, 2026. If you’re searching for answers now, you’re not late — you’re in the critical compliance window, and there’s still time to act without penalty or exposure.
This is not a recap of what passed in Austin. This is a guide to what you still have time to do, organized by deadline and business type, grounded in what actually matters for Houston operations.
Your Compliance Calendar at a Glance
Bills with emergency clauses took effect immediately upon signing between February and April 2025. These should already be addressed through your counsel.
September 1, 2025 was the standard effective date for Texas legislation without emergency clauses. This wave included employment law adjustments, Business Organizations Code amendments, and select tax administrative changes. If you haven’t reviewed what hit September 1, you’re operating with exposure. That’s not a scare tactic — it’s just where things stand.
January 1, 2026 is when phase-in provisions arrive, typically in the tax and franchise reporting space, along with any provisions where the Legislature built in a runway for regulatory agencies to finalize rules before compliance became mandatory.
September 1, 2026 carries the second wave of employment and regulatory provisions, including employer-size-triggered mandates that phase in later. This is the deadline competing coverage has almost entirely ignored. It’s also the one that will catch the most Houston employers off guard. Mark it now.
| Effective Date | Categories |
|---|---|
| Emergency clause (spring 2025) | Varies by bill; verify with counsel |
| September 1, 2025 | Employment, entity formation, property tax procedure, preemption |
| January 1, 2026 | Tax thresholds, franchise reporting, select exemptions |
| September 1, 2026 | Employment (employer-size triggers), contractor classification review cycles |
LLC Formation and Business Entity Rules
Houston is forming new businesses fast enough that it’s worth stating plainly what changed and what didn’t.
Whether the 89th Legislature amended the Texas Business Organizations Code affecting LLC formation, registered agent requirements, or series LLC rules is something you should confirm directly with a business formation attorney or by pulling the 89th session’s enrolled bills through the Texas Secretary of State. Competing coverage has created real confusion by asserting changes that may not apply to your entity type or situation. Don’t rely on general summaries — including this one for anything structural. Get the specific enrolled legislation, or have counsel confirm what applies to your structure.
One thing not in dispute: Texas requires every domestic LLC and corporation to maintain a registered agent with a physical Texas street address. A P.O. box doesn’t qualify. If you’re operating a multi-entity structure and haven’t audited your registered agent information across all entities recently, that’s a housekeeping item that should happen before year-end regardless of what the 89th session did or didn’t change. It’s easy to neglect and surprisingly painful when it bites you.
The series LLC structure is still available under Texas law. Real estate investors in Houston use it to isolate liability across individual properties within a single master entity — a genuinely elegant setup when it’s done right. But the structure only protects you if the paperwork was right from the start. No exceptions. Owners of existing series LLCs should have a business formation attorney confirm that each protected series was properly established under prior BOC requirements. Deficiencies are harder to cure retroactively than most people expect.
What didn’t change: Houston still has no general business license requirement for most commercial operations. What exists instead is a patchwork of sector-specific permits — food service through the Houston Health Department, alcohol through TABC, contractor licensing through TDLR at the state level. Texas also has no state income tax, and Houston has no city income tax. That sounds almost too good to be true if you’re relocating from California or New York, and yet here we are.
For owners in EaDo, the East End, or along the Washington Avenue corridor who are actively forming entities as they open second or third locations: the relevant question isn’t whether new formation rules created new burdens. It’s whether the entity structure you’re using actually isolates liability given your growth trajectory. That’s a conversation for a business formation attorney, not a compliance deadline question.
Employment Law — New Obligations by Business Size and Sector
This is where operational urgency is highest for Houston’s dominant industries: energy services, healthcare, hospitality, and construction. It’s also where the gap in competing coverage is widest, which is why we track it closely in our business and professional coverage.
Texas minimum wage stays at $7.25 per hour — the federal floor. The 89th Legislature didn’t change it. Houston employers paying at or near that floor are governed by federal law, not new state law.
Noncompete agreements have a longer history in Texas than most states realize. Texas has historically enforced noncompetes that meet the statutory reasonableness test under the Texas Covenants Not to Compete Act — geographic scope, duration, and the scope of restricted activity must all be reasonable. The FTC’s rule that would have broadly banned most noncompetes was vacated by a federal district court in Texas in August 2024, and that vacatur held. Whether the 89th Legislature passed additional noncompete legislation is something your employment counsel should verify against the enrolled bills.
What is clear is that the existing Texas statutory framework is how these agreements get adjudicated. Houston employers in energy services, healthcare, and technology who rely on noncompetes should have employment counsel review their current templates. A noncompete that’s geographically or temporally overbroad may not survive a challenge, even if you’ve been using the same template for years and nothing has gone wrong yet. “We’ve always done it this way” is not a legal defense.
Paid sick leave preemption: Houston’s paid sick leave ordinance, passed by City Council in 2019, has been blocked from enforcement since it was enjoined. SB 14 from the 88th Legislature in 2023 formalized the preemption by prohibiting local governments from enacting or enforcing mandatory paid leave requirements for private employers. Whether the 89th Legislature modified or expanded that preemption is worth confirming with employment counsel who has reviewed the session’s enrolled bills.
Houston’s paid sick leave ordinance cannot be enforced under current law. Employers who voluntarily provide paid leave should document their policies clearly — those policies are governed by contract and internal policy, not a city mandate. That distinction matters if a former employee ever claims entitlement.
September 1, 2026 phase-ins are the deadline most Houston employers aren’t tracking. Your employment counsel should identify which 89th session provisions carry that trigger for employer-size obligations. Employers with 15 or more employees should be auditing written policies, classification practices, and onboarding documentation now — not in August 2026, when there’s no runway left. Agency rulemaking under these provisions may refine applicability through early 2026, which is exactly why you want counsel tracking this actively. Waiting for the deadline to clarify itself is a strategy that works right up until it doesn’t.
For Houston’s construction and hospitality sectors, where turnover is high and written employment policies are sometimes informal or nonexistent: the practical risk isn’t any single new mandate. It’s the cumulative exposure that builds when policy documentation doesn’t keep pace with headcount. The 89th session is a useful forcing function to clean that up before a labor dispute makes the gaps obvious.
Independent Contractor Rules and the Energy Corridor’s Exposure
Texas is the only state in the country that doesn’t require private employers to carry workers’ compensation insurance. This non-subscriber system is built into how Energy Corridor firms operate. The O&G service companies, oilfield contractors, and subsurface engineering firms concentrated along Westheimer near I-10 structure their workforces and manage risk around this framework. It creates real cost control advantages — and real exposure if classification decisions are challenged. That exposure is underappreciated right now.
Whether the 89th Legislature changed Texas’s non-subscriber framework or the state’s statutory definition of independent contractor is something Energy Corridor operators should confirm with employment counsel who has reviewed the enrolled bills.
But the federal picture isn’t waiting for Austin. The U.S. Department of Labor’s 2024 rule restoring a multi-factor “economic reality” test for contractor classification under the Fair Labor Standards Act is in effect. An Energy Corridor company that classifies field technicians, safety consultants, or site supervisors as 1099 contractors to avoid FLSA overtime exposure needs to assess those arrangements against the current federal standard — not the older “control test” that some operators are still using as their benchmark. The gap between what you’re doing and what the federal government is testing for can be significant, and the DOL has specifically increased audits of non-subscriber states because the structure gets used as a cost-control mechanism.
If your firm operates across state lines or takes federal contracts, NLRB and IRS classification standards apply alongside FLSA. A Houston oilfield services firm sending crews to offshore Gulf installations or projects in other states is operating in a multi-jurisdictional classification environment where each jurisdiction applies its own standard. That’s a genuinely complicated situation, and it deserves more than a boilerplate contractor agreement drafted five years ago.
Energy Corridor employers with more than 20 active 1099 relationships should commission a contractor classification audit before January 1, 2026. The cost of the audit is a fraction of the back-pay, penalty, and insurance exposure if a reclassification challenge succeeds.
Commercial Property Tax — What HCAD Is Actually Implementing
The 2023 Proposition 4 constitutional amendment and its subsequent legislative implementation generated extensive property tax coverage. Almost all of it focused on residential homesteads. Commercial property owners got comparatively little attention, and that’s a gap worth closing.
Appraisal caps don’t apply to commercial real estate. Texas’s constitutional cap limiting annual appraised value increases applies to homesteads only. In a rising market, that’s significant exposure for commercial owners. In a market where office vacancy softens valuations — and Galleria-area office vacancy has been genuinely volatile since 2020, swinging enough in some cases to materially affect NOI — HCAD’s appraised value may not drop as quickly as you expect without a protest. Whether the 89th session created any new commercial appraisal cap or protection is something your property tax counsel or CPA should verify against the enrolled legislation. No such cap has been publicly reported as passing, but confirm before assuming you’re covered.
Appraisal review board procedures may have changed. Whether the 89th session enacted procedural reforms affecting evidence submission timelines or HCAD documentation obligations requires confirmation with a property tax consultant who has reviewed the enrolled legislation. If such reforms passed, they’d favor prepared property owners who understand the new process. If you own commercial property in Houston and haven’t filed a protest in recent years, get a property tax consultant to review your current valuations regardless of what the 89th session did. Valuations drift upward without challenge. That’s just how it works.
The May 15, 2026 protest deadline is firm. For the 2026 tax year, the deadline to file an appraisal protest with HCAD is May 15, 2026, or 30 days after your appraisal notice is mailed, whichever is later. Mark it for each parcel separately. Missing it for one property doesn’t extend your time on another. The HCAD website allows account monitoring — worthwhile if you own more than one parcel.
Franchise tax threshold: The Texas franchise tax “no tax due” revenue threshold currently stands at $2.47 million in annualized revenue. Businesses below this threshold file a No Tax Due report but owe nothing. Confirm with your CPA whether the 89th session adjusted this figure for your January 2026 franchise tax report. If you’re operating near that margin, model the impact now rather than in January.
Sales Tax and Sector-Specific Exemptions
Texas’s sales tax code is genuinely, frustratingly dense, and the 89th Legislature made targeted additions rather than a structural overhaul. Specific provisions require confirmation against the enrolled bills rather than reliance on summaries.
Data center exemptions have been expanded over successive legislative sessions to attract large-scale infrastructure investment to Texas. Whether the 89th session continued that trend is something your CPA should verify. Under existing Texas law, qualifying data center projects meeting capital investment and job creation thresholds can access exemptions on qualifying equipment, electricity, and infrastructure purchases. For Houston operators, where the metro’s power grid capacity, port access, and land cost profile make it increasingly competitive with the Dallas-Fort Worth data center cluster, the exemption framework is a meaningful incentive. If you’re planning a facility build or major equipment refresh in the next 18 months, understand what you might qualify for — the money is real and the paperwork is manageable.
One thing that often gets lost when coverage focuses on large operators: if you’re a subcontractor, systems integrator, or equipment vendor serving a qualifying data center project, your customer’s exemption status affects how you invoice and document the transaction. Issuing an invoice without a properly executed exemption certificate in hand creates sales tax liability for your firm. This is a common audit trap. Get your exemption documentation protocol reviewed if you’re working in this space.
Manufacturing and energy infrastructure equipment exemptions stay in place under existing law. Texas’s manufacturing exemption removes machinery and equipment used directly in manufacturing from the sales tax base. For midstream and downstream operators and industrial manufacturers along the Ship Channel and in Deer Park, confirm with your CPA whether any processing equipment purchased in 2025 or planned for 2026 qualifies under the current standard — and do it before the purchase, not after. The exemption applies to equipment that becomes part of the production process, and determining what qualifies requires technical review. Not a determine-it-yourself situation.
If you sell equipment, software, or services to customers claiming exemptions: obtain and retain valid exemption certificates in good form, keep them for at least five years, and make sure they’re organized and retrievable. Audits of vendors to exempt customers are a consistent enforcement tool, and the burden of proof rests with you.
What Houston’s Local Regulations Add — and Where State Law Now Preempts
One of the more important effects of the 89th Legislature on Houston business owners isn’t a new bill. It’s a reinforced boundary — the line between what the City of Houston can regulate and what is state-preempted.
Houston has historically been more activist than most Texas cities in extending local workplace protections. The Legislature has spent two sessions systematically pulling that authority back to Austin. You can have whatever opinion you want about that dynamic. The compliance reality is what it is.
Paid sick leave is preempted. Houston’s 2019 paid sick leave ordinance is still on the books, but it can’t be enforced and hasn’t been since it was enjoined. The 88th Legislature’s SB 14 formalized this preemption by prohibiting local governments from requiring private employers to provide paid leave. If you’ve been receiving conflicting information — and some businesses have, because the ordinance sitting on the books creates confusion — the operative law is clear. No city-level paid leave mandate applies to your Houston private-sector employees. Your employment counsel can confirm whether any 89th session action modified this preemption.
Local minimum wage ordinances above the state floor are also preempted under Texas law. Houston can’t set a higher local minimum wage. The state floor of $7.25 per hour tracks the federal floor.
What the city still controls is broad. Houston’s permitting authority over construction, signage, building renovation, food service operations, and zoning-related land use decisions is fully intact. If you’re opening a new location, expanding an existing footprint, or doing any structural work, the City of Houston’s permitting process flows through the Permitting Center at 1002 Washington Avenue. (HCAD administers property tax appraisals and is a separate county entity, not a city function — a distinction that confuses more people than you’d expect.) TABC licenses flow through the state. TDLR licenses contractors at the state level. Knowing which level of government controls which function matters when you’re managing multiple simultaneous compliance obligations.
Houston City Council continues to propose ordinances in employment and labor areas. Don’t plan around anticipated local ordinances that face preemption challenges. Plan around what’s actually enforceable.
Your Action Checklist by Business Type
LLC Owner or New Business Filer
- Confirm registered agent information is current in SOSDirect for every entity in your structure. Before year-end.
- If you operate a series LLC for real estate, have a business formation attorney confirm each protected series was properly established under BOC requirements.
- Confirm with a CPA whether the 89th session adjusted the franchise tax “no tax due” threshold from $2.47 million in annualized revenue. The answer affects your January 2026 filing.
- Know what permits you actually need: Houston Permitting Center, TDLR, TABC. There’s no general “Houston business license,” but sector-specific permits are real obligations.
- Have a business formation attorney review what BOC amendments the 89th session enacted and whether any affect your entity structure or registered agent obligations.
For BOC questions: business formation attorney. For franchise tax threshold confirmation: CPA.
Employer with 15 or More Employees
- Have employment counsel review your noncompete agreements against the Texas Covenants Not to Compete Act reasonableness standard. Especially if you’re in energy services, healthcare, or technology.
- Have employment counsel identify which 89th session provisions carry September 1, 2026 phase-in dates for employer-size-triggered obligations, and build compliance infrastructure before August 2026.
- Audit independent contractor classifications against the DOL’s current economic reality test. Federal obligation, not a new state one — but it’s active and being enforced.
- Pull your written employee handbook and confirm leave policies are documented as voluntary, not as compliance with a city mandate. The city mandate is preempted; voluntary policies are governed by contract.
Employment attorney for noncompete review, classification audit, and September 2026 provision applicability.
Commercial Landlord or Commercial Tenant
- Mark May 15, 2026 on your calendar as the HCAD appraisal protest deadline — separately for each parcel you own.
- Engage a property tax consultant to confirm what ARB procedural changes the 89th session enacted and whether they affect your evidence submission strategy.
- For leases with property tax pass-through provisions, understand whether any appraisal protest reforms change how you document and share that process with tenants.
- Confirm with your CPA the current franchise tax “no tax due” threshold and whether the 89th session adjusted it.
Property tax consultant or attorney for ARB procedures; CPA for franchise tax threshold impact on related business entities.
Contractor or Energy Service Firm
- If you have more than 20 active 1099 relationships in your workforce, commission a contractor classification audit against the DOL economic reality test before January 1, 2026.
- Have employment counsel confirm whether the 89th session changed Texas’s non-subscriber workers’ compensation framework or independent contractor classification definitions.
- Review your non-subscriber structure with your insurance broker. Your exposure profile may have shifted with workforce growth regardless of whether state law changed.
- If you take federal contracts or work across state lines, confirm which classification standard governs each workforce segment.
- For equipment purchases that may qualify under manufacturing or energy infrastructure exemptions, confirm eligibility with your CPA before the purchase.
Employment attorney for classification audit and non-subscriber framework confirmation; commercial insurance broker for non-subscriber coverage review; CPA for equipment exemption eligibility.
Food and Beverage Operator
- Houston’s paid sick leave ordinance is not enforceable under current law. Your leave policy obligations are voluntary and contractual. Document them clearly.
- TABC licensing and Houston Health Department permits are your primary compliance obligations.
- If you’re expanding to a second location, have a business formation attorney review your entity structure. Confirm what BOC administrative updates the 89th session enacted and whether any simplify multi-entity maintenance.
- Confirm that any sales tax exemptions you claim on equipment or supplies are backed by current, properly documented exemption certificates in your files.
TABC directly for license questions; Houston Health Department for food service permits; business formation attorney for entity structure review.
The 89th session didn’t produce one sweeping overhaul. It produced a collection of targeted changes — some procedural, some structural, some reinforcing existing preemptions — arriving in waves through September 2026. Most of them don’t make headlines. None of them care whether you were paying attention.
The compliance window you’re in right now is the right time to act. Use it.
CityDesk Houston will update this guide as agency rulemaking under the 89th session’s provisions is finalized through early 2026. Specific bill numbers and final regulatory text should be confirmed with qualified counsel before action is taken.
