Franchise Tax

What is Franchise Tax?

Franchise tax is a type of tax imposed on businesses by certain states in the United States. It is not related to the franchising business model, as the name might suggest. Instead, it is a tax levied on the privilege of conducting business as a corporation or limited liability company (LLC) in a particular state.

States with Franchise Tax

Several states impose franchise tax, each with its own rules, rates, and thresholds. It is important to note that not all states require businesses to pay franchise tax. Some states, such as Nevada, Wyoming, Washington, and Ohio do not impose this type of tax. 

The following is a list of states that currently impose franchise tax are:

  • California    
  • Delaware
  • Georgia
  • Illinois
  • Louisiana
  • Massachusetts
  • Mississippi
  • New York
  • North Carolina
  • Oklahoma
  • Tennessee
  • Texas

It’s important to note that franchise tax requirements can change over time, and new states may introduce or remove franchise tax in the future. Therefore, it is recommended to consult with a tax professional or refer to the specific state’s tax authority for the most up-to-date information regarding franchise tax obligations.

Calculation of Franchise Tax

The method of calculating franchise tax varies from state to state. However, the most common methods include the calculation based on a business’s net worth, taxable capital, or revenue. Some states may use a combination of these factors, while others may have a unique calculation method. It is essential for businesses to familiarize themselves with the specific requirements of the state(s) in which they operate.

Purposes of Franchise Tax

Franchise tax serves multiple purposes for states that implement it. These purposes include:

  • Revenue Generation: Franchise tax provides states with a source of revenue to support public services, infrastructure development, and other governmental functions.
  • Business Regulation: Franchise tax acts as a regulatory measure, requiring businesses to contribute financially to the state in which they operate.
  • Compliance Monitoring: By requiring businesses to file annual franchise tax returns, states can track and monitor the activities of corporations and LLCs within their jurisdiction.


Franchise tax is an important consideration for businesses operating in states where it is imposed. By understanding the basics of franchise tax and its implications, businesses can fulfill their tax obligations and maintain compliance with state regulations. Seeking professional advice and staying informed about the specific requirements of the state(s) in which you operate is crucial for successful business operations in the United States.

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General FAQ’s

Franchise tax is a type of tax imposed on businesses by some U.S. states for the privilege of operating as a corporation, limited liability company (LLC), or other business entity within their jurisdiction.

Several states in the U.S. impose franchise tax, including but not limited to Texas, Delaware, California, New York, and Pennsylvania. The specific requirements and rates vary by state.

The calculation of franchise tax differs depending on the state and entity type. It can be based on various factors, such as a business’s net worth, capital stock, revenue, or a combination of these factors. Each state has its own formula and rates for determining the tax liability.

No, not all businesses are subject to the franchise tax. The requirements vary by state, and some states may have exemptions or thresholds based on factors such as revenue or entity type. It is important to check the specific rules of the state where the business operates.

Consequences for non-payment of franchise tax can vary by state. Typically, penalties and interest accrue on the outstanding tax amount. In some cases, failure to pay franchise tax may result in the suspension or forfeiture of the business’s legal status or the ability to conduct business within the state.

Franchise tax is generally not deductible as a business expense for federal income tax purposes. However, it’s advisable to consult with a tax professional or accountant to understand the specific tax implications and deductibility rules in your jurisdiction.

Some states provide exemptions or reduced rates for certain types of businesses, such as nonprofits, small businesses, or entities with limited revenue. Exemption eligibility and requirements vary by state, so it’s important to consult the regulations of the specific state where the business operates.

For detailed information about franchise tax in a specific state, including regulations, rates, forms, and filing requirements, it is recommended to visit the official website of the state’s taxation authority or consult with a qualified tax professional.

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FAQs: Delaware Franchise Tax

Franchise tax in Delaware is an annual tax imposed on businesses that have been incorporated in the state or operate as foreign corporations registered to do business in Delaware.

The franchise tax calculation in Delaware depends on the type of entity. For corporations, it is based on authorized shares or assumed par value capital. For LLCs, it is based on the number of members. Specific formulas and rates can be obtained from the Delaware Division of Corporations.

The franchise tax in Delaware is typically due by March 1st of each year. It is important to file and pay the tax on time to avoid penalties and interest charges.

If the franchise tax is not filed and paid by the due date, penalties and interest charges may be imposed. It is advisable to file as soon as possible to mitigate any additional costs.

Yes, Delaware provides an online system called “Delaware Annual Report and Franchise Tax System” for businesses to file their franchise tax returns and make payments electronically.

Delaware does not generally grant extensions for the franchise tax deadline. It is crucial to file and pay on or before the due date to avoid penalties and interest charges.

Yes, along with the franchise tax payment, businesses in Delaware are also required to file an annual report providing updated information about the company’s directors, officers, and registered agent.

For detailed information regarding franchise tax in Delaware, you can visit the official website of the Delaware Division of Corporations or seek guidance from a tax professional well-versed in Delaware corporate tax laws.

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