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Research Outline
Prepared for Krish A. | Delivered December 5, 2019
Franchise Taxes in the United States
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Goals
To provide general information on franchise taxes in the United States and a breakdown of information state-wise in order to create blogs to guide business owners.
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Early Findings
California
Overview: The
California Franchise Tax Board
sets the annual rate payable by LLCs, S corporations, C corporations, LPs and LLPs. For new businesses, the minimum due is $800 per year. There is
exemption
for the first year of operation for certain businesses.
Who collects: Businesses pay the California Franchise Tax Board
directly
.
Who pays:
LLCs, S corporations
, C corporations, LPs and LLPs.
How calculated: The rate is either
$800
or the net income multiplied by the corporate tax rate (whichever is more).
Frequency:
Annually
.
Due dates/deadlines: It must be paid by the
end of the first quarter
of each accounting period.
Delaware
Overview: Franchise taxes are set by the
Delaware Division of Corporations
.
Who collects: Businesses pay Division of Corporations
directly
.
Who pays: LLCs, LPs and corporations. Non-stock/non-profit companies only have to pay a
$25
filing fee.
How calculated: LLCs and LPs are charged a flat rate of
$300
.
Corporations
are calculated based on share numbers. Under 5,000 is $50 reporting plus $175 tax to total $225. 5,001-10,000 shares is $50 reporting plus $250 tax to total $300. Shares more than 10,000 are then added in proportion up to no more than $200,000.
Frequency:
Annually
.
Due dates/deadlines: Corporations are
due
March 1 every year. LLCs and LPs are
due
June 1 every year.
New York
Overview: New York's tax system is notoriously much more
complicated
that other states.
Who collects:
New York Departmet of Taxation and Finance
can be paid online or when filing through a software provider.
Who pays:
LLCs
, LPs and corporations.
How calculated: "The easiest
method
is calculating tax based on net income, which equals the federal taxable income. A company's investment capital (minus any liabilities) may also be taxed. Another method is the minimum taxable income, calculated from net income plus some federal adjustments. Finally, the fixed dollar minimum method taxes companies on gross receipts, and charges set tiers a flat dollar amount." Another breakdown of how taxes are calculated is available
here
. The
MTA surcharge
also applies to the franchise tax.
Frequency:
Annually
. Though companies can use
estimated payments
quarterly.
Due dates/deadlines: General business corporation calendar year
filers
must pay before April 15, whereas fiscal year
filers
must pay 3.5 months after the end of their last reporting period.
S corporations
must file on or before March 15 or 2.5 months after the end of the last reporting periood.
Texas
Overview: Texas has a generous threshold for when franchise tax is payably from. A business must earn over
$1,180,000
before they pay any tax.
Who collects:
Texas Comptroller of Public Accounts
. Payments can be made directly or when filing using approved software.
Who pays:
Corporations
, LLCs, LPs, PLLCs and PCs.
Sole proprietorships
are not applicable.
How calculated: For
2020-21
, the rates for earnings over $1,180,00 are 0.375% (retail or wholesale), 0.75% (all other), 0.331% EZ computation rate. EZ Computation threshold is earnings of $20 million. The compensation deduction limit is $300,000.
Frequency:
Annually
.
Due dates/deadlines: May 15.
LPs
only have to file periodic reports not more than once every four years, but any tax payment is still made annually.
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