Franchise Taxes in the United States

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.

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

  • 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.

Proposed next steps:

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We recommend continuing this research on franchise taxes in West Virginia, Illinois, Pennsylvania, Alabama, Missouri, Oklahoma, Arkansas, Georgia, Mississippi, Tennessee, Louisiana, and North Carolina. For each state, we would provide: (1) an overview of franchise tax in the state, (2) who collects them, (3) who should pay them, (4) how they are calculated, (5) how often it has to be paid (frequency), and (6) the due dates/deadlines. For point number 4, we would note any information that would be related to C-corporation, S-corporation, and LLCs, as available.
We could also conduct market research to find which states are generally considered the best for businesses in regards to taxes. This would also highlight any difference by business type (LLC/LP/S corp/C corp/other) and size.