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Franchise Taxes in the United States

Delivered December 4, 2019. Contributor: Aliyan M.

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

Franchise Tax in the US

Overview

The franchise tax is levied by the state government in the United States against the corporations, partnerships, and other types of business entities for the privilege of conducting business in that state.

Who should pay this tax?

The franchise tax is charged on any business that is registered with a state to "do business" including corporations, partnerships, and limited liability companies (LLC). The franchise taxes are not normally subjected to sole proprietorship businesses in states where they are not officially required to register with the jurisdiction to do their business.

What states levy this tax?

In the United States, the franchise tax is applicable in 15 states namely, West Virginia, Illinois, Pennsylvania, Alabama, Missouri, Oklahoma, Arkansas, Georgia, Mississippi, New York, Tennessee, Delaware, Texas, Louisiana, and North Carolina.

How the franchise tax is calculated?

The calculation of franchise tax varies depending on the state that is charging. The methods include but not limited to:
1. Calculation based on the net worth or assets of the business
2. Calculation based on the value of the company's capital stock 
3. Flat fee amount to all businesses in a given state
4. Calculation based on the company's paid-in capital 
5. Calculation based on the company's gross receipts 

How it is different from business income tax?

The franchise tax is different from income tax as it is not calculated on the company's profits. The franchise tax is mandatory for all registered businesses regardless of the profitability status. For some states, the franchise tax is in addition to the business income tax while for a few states, it is instead of the income tax.

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