Franchise Tax

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 2,748 reviews

Jump to Section

Need help with Articles of Incorporation?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

The "franchise tax" is not a fancy tax, unlike its name. It is a tax that states assess corporations and business entities for the privileges of incorporating or conducting business in their respective states. These taxes are not imposed by the state income tax that most states impose upon corporations and other companies.

Franchise taxes are an option in many but not all states. Nevada is one state that does not allow franchise taxes. Some states have a tax that exempts certain types of businesses from it. These could be non-profit corporations, fraternal associations, or some LLCs. Some states also exempt a smaller company from the tax.

Different states have different franchise tax rates. For example, some have an all-inclusive franchise tax, while others have a graduated rate. In addition, some states change the tax rate according to the type and business of the entity.

Franchise taxes should be paid annually, sometimes at the same tax time as other state taxes.

What is a Franchise Tax?

A franchise tax simply means that a state charges a business tax for doing a business in the state. Each state's franchise taxes are different and may be combined with or instead of small business tax or income tax. As a result, many details differ between states, including how the tax is calculated and which businesses must pay it.

A franchise tax is a charge to businesses in or incorporated within a particular state. Companies may be charged tax simply for owning property in the state. You should check the specific franchise tax requirements in your state.

Note that sometimes a franchise or privilege tax is also known as a franchise fee. It is levied on businesses to do business with a particular state. A franchise tax is not dependent on profit. However, it is mandatory for businesses, regardless of profitability.

Meet some lawyers on our platform

Tabetha H.

12 projects on CC
View Profile

John P.

7 projects on CC
View Profile

Michael M.

7 projects on CC
View Profile

Brad H.

8 projects on CC
View Profile

Who has to Pay Franchise Taxes?

Franchise taxes are typically required for all businesses that register with a state. However, the franchise tax isn’t usually required for businesses operated by just one person or sole proprietors.

The United States Small Business Administration will help you determine if you have to register your business. Registering with the State makes your company a separate business entity. Therefore, it is not necessary for small businesses. Also, according to SBA, you don't have to have a legal name.

Clear and precise information about the business' location is necessary to determine whether it needs to be registered.

Which States have a Franchise Tax?

Only some states require that businesses pay franchise taxes. These taxes can be added to the other state taxes. Washington D.C. also imposes a franchise fee.

Is it Possible to Eliminate Franchise Taxes?

The West Virginia franchise tax for business was eliminated in 2015. Likewise, Kansas' franchise tax was eliminated from West Virginia in 2015. It was also eliminated from Missouri and Pennsylvania.

A franchise tax differs from the standard business income tax paid each year when filing taxes. The IRS offers helpful information on its website. It shows income tax details for different business structures, including limited liability companies and partnerships, at a federal level.

How Much Franchise Tax do I have to Pay and How do I Calculate it?

The rates of franchise taxes are subject to different variables from state to state, just as the rules surrounding other taxes. In addition, these taxes will vary depending on where and what kind of business you own. That's why it is so important to learn the specifics of your state's franchise tax.

In some states, the franchise tax is a flat-rate rate. This makes the calculation simple depending on the type and size of your business. To calculate tax, you can use a percentage of the business's net worth, gross receipts of business for the tax period, and a percentage of the assets. However, it is not related to any company’s income in a given fiscal year.

A Delaware corporation has one the highest rates among all states that collect it. There is a $175 franchise tax. It can be used to calculate the total tax. Non-stock-for-profit businesses will pay $175. Companies can also calculate Delaware franchise taxes using the Authorized Shares Method (or the Assumed Par Value Capital Method). You can see the details on the Delaware Division of Corporations’ website. Some methods have a lower minimum than others.

Most states have calculators or detailed instructions on calculating specific taxes on their websites. Delaware is one example. Each state calculates its tax differently, so it is a good idea to double-check the information before you file. New York, for instance, requires that business owners calculate the tax multiple times before paying the highest rate.

Who Collects Franchise Tax?

Tax collection, too, varies from one state to another. Depending upon where you are paying the franchise fee, different departments within your state government may be responsible for collecting that tax.

The Comptroller's Office manages tax collection in Texas. The franchise taxes are described as "a privilege tax imposed on every taxable entity formed in Texas or doing business there." On the other side, California's Franchise Tax Board is responsible for collecting the tax.

What are the Legal Consequences of Not Paying the Franchise Tax?

Failure to pay the franchise fee can result in severe penalties that impact your business. Failure to pay taxes may notify the department responsible for collecting them. If you fail to pay your tax, you could be subject to a tax lien. This is an excellent opportunity to establish a payment schedule to start repaying what you owe.

Failure to pay the franchise tax may result in a business losing its legal standing. For example, they may lose their right to file lawsuits or take part in any legal action.

If the franchise tax is not paid, it could result in an LLC losing its protections. If this happens, owners or management could be financially liable.

When is the Franchise Tax Due?

Franchise taxes must be paid every year. However, it differs from one state regarding the rates and which businesses are responsible for when franchise taxes are due.

There is a strict deadline for franchise taxes, as with other taxes. If you miss it, late fees will apply. Some states have specific due dates. It depends on what type of business you run. For corporations in Delaware, the due date is March 1, and for LLCs, it is June 1. It may be due in other states on the 15th (or fourth) day of the third/fourth month of the tax calendar.

Bottom Line

Sometimes, the date can be the anniversary of the company's formation and not the tax due date. This would result in the tax due being paid in the same month as the business anniversary.

The website for your state will provide information about due dates for tax. States have their deadlines, usually found on the same website detailing the tax. Deadlines for extensions are also available online.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Matthew H. on ContractsCounsel
View Matthew
Member Since:
December 8, 2021

Matthew H.

Attorney
Free Consultation
Get Free Proposal
San Diego
6 Yrs Experience
Licensed in CA
Whittier Law School

We are a boutique firm located in San Diego that handles civil litigation with a couple other areas of law.

Elizabeth W. on ContractsCounsel
View Elizabeth
Member Since:
December 11, 2021

Elizabeth W.

Legal Counsel
Free Consultation
Get Free Proposal
Minneapolis, MN
5 Yrs Experience
Licensed in MA, RI
Suffolk University Law School

Liz is an experienced insurance professional, having worked with carriers and brokers for over 10 years. She can review or draft a variety of commercial agreements and is here to help your business. Specialties include: Master Service Agreements, business process outsourcing, marketing and partnership agreements, broker agreements, and NDAs.

Philip M. on ContractsCounsel
View Philip
Member Since:
December 13, 2021

Philip M.

Attorney
Free Consultation
Get Free Proposal
San Diego
4 Yrs Experience
Licensed in CA
Thomas Jefferson School of Law

I have been a freelance attorney for several years and have many of my clients returning to me for continued work because of the quality I produce.

Amy Sue L. on ContractsCounsel
View Amy Sue
Member Since:
January 4, 2022

Amy Sue L.

President, Concierge Legal
Free Consultation
Get Free Proposal
Washington, DC Metropolitan Area
25 Yrs Experience
Licensed in CA, PA, VA
Pepperdine University School of Law

Ms. Leavens is a corporate attorney with 10 years of experience as the General Counsel, Chief Compliance Officer and Corporate Secretary of a Congressionally chartered, non-profit corporation, and more than 20 years of experience as an advisor to executive officers and boards of directors in for-profit and non-profit organizations. She has substantial experience within in-house legal departments managing cross-functional teams comprised of multiple business units and attorneys on large-scale mission critical projects, and within a global law firm as a manager of public and private, domestic and international, multi-party business transactions. She has unique experience implementing government-sponsored business initiatives. Ms. Leavens was honored in 2015 as one of Washington, D.C.’s Top Corporate Counsel by Bisnow and the Association of Corporate Counsel; nominated in 2014 for the Association of Corporate Counsel (WMACCA) Outstanding Chief Legal Officer Award; and the recipient in 2014 of WMACCA’s Community Service Award.

Elizabeth V. on ContractsCounsel
View Elizabeth
Member Since:
January 5, 2022

Elizabeth V.

Corporate Counsel
Free Consultation
Get Free Proposal
Indianapolis, IN
8 Yrs Experience
Licensed in IN
IU McKinney School of Law

Most of my career has been as in-house counsel for technology companies. My responsibilities included managing all vendor/procurement contracts and compliance, customer/partner/reseller contracts and compliance, data security/privacy compliance and incident responses, HR/employment issues, and legal operations. I am very comfortable negotiating Commercial Contracts, Vendor Agreements, and Procurement Contracts for goods, services, and licensing, as well as addressing Employment & Labor, Intellectual Property, and Data Privacy issues and compliance. I specialized and have a certificate in IP in law school and continued to develop in that area as in-house counsel for Interactive Intelligence, Genesys, which are unified communication companies, and KAR Global in the automobile digital services lines of business.

Kristen R. on ContractsCounsel
View Kristen
Member Since:
January 10, 2022

Kristen R.

Freelance Attorney
Free Consultation
Get Free Proposal
Wyoming
14 Yrs Experience
Licensed in WY
University of Wyoming

Transactional and Employment Attorney and Small Business Owner. I do inside counsel work from the outside. I demystify the law for my clients.

Amos M. on ContractsCounsel
View Amos
Member Since:
January 13, 2022

Amos M.

Principal
Free Consultation
Get Free Proposal
Nashville, TN
14 Yrs Experience
Licensed in GA, TN
Mississippi College School of Law

Since 2008, I have worked to assist clients in solving problems and addressing challenges that inevitably arise as a business grows - both anticipated and unexpected. My experience in Georgia and Tennessee in both drafting contracts and enforcing them via litigation and/or arbitration has provided clients with unique insights that help them anticipate problems and inform their decisions from start to finish.

Leah C. on ContractsCounsel
View Leah
Member Since:
January 18, 2022

Leah C.

Attorney
Free Consultation
Get Free Proposal
Alabama
7 Yrs Experience
Licensed in AL
Birmingham School of Law

I am an attorney licensed in Alabama and have been in solo practice for 7 years. I have experience in Contracts drafting and review, Litigation and Immigration practice areas. I am available for new projects.

Meghan T. on ContractsCounsel
View Meghan
Member Since:
January 31, 2022

Meghan T.

Partner
Free Consultation
Get Free Proposal
Atlanta
3 Yrs Experience
Licensed in GA
Emory University

Meghan Thomas is an accomplished transactional attorney. She specializes in real estate transactional matters, property disputes, IP, tech and media contracts. Meghan's innovative leadership style has attributed to the firm's rapid development and presence in the metro-Atlanta market. She obtained her Doctor of Law from Emory University where she worked with the State Attorney General and litigated property disputes for disadvantaged clients. ​ Prior to practicing, Meghan negotiated complex transactions for Fortune 500 tech and healthcare companies. She lives with her family in Southwest Atlanta, enjoys cooking, travel, dance and continues to develop her research in the areas of transactional law and legal sustainability.

Cecilia O. on ContractsCounsel
View Cecilia
Member Since:
January 31, 2022

Cecilia O.

Contracts Attorney
Free Consultation
Get Free Proposal
San Antonio
15 Yrs Experience
Licensed in CT, MD
Ghana School of Law

With 15 years of extensive transactional/contracts experience reviewing and negotiating commercial contracts including a wide variety of purchase orders and contracts and non-disclosure agreements (NDA), I believe I can immediately contribute to the continued success of your team. I have been commended for a range of valuable skills—excellent contract management and contract administration, legal research, risk analysis, drafting and negotiations, and strategic thinking. I have worked as a legal consultant for 10+ years and I have reviewed over 7,500 contracts through this position. Contracts I have reviewed include but not limited to purchase orders, commercial and construction contracts, equipment rental agreements, non-disclosure, confidentiality, vendor agreements, service agreements, site access agreements, international agreements, request for proposals (RFP), bids and government contracts. These experiences have enabled me to master the ability to work independently and expeditiously to identify and assess issues and provide legally sound recommendations, consistent with good business practices. I have led teams (sales, insurance and management) to successfully negotiate contract terms with customers. Effective Communicator and Negotiator. I am a people person, and for the past 13 years, I have acquired excellent oral and written communication skills that enable me to interact and negotiate effectively with stakeholders at all levels. I am a self-starter with a strong work ethic. I have a high degree of resourcefulness, diligence, and dependability. Most important, I adapt to changing priorities quickly, thriving in an environment with high volume and short turnaround deadlines. My experience over the years allows me to transfer my skills to all types of contracts to meet the client’s needs. I am hopeful to provide similar legal expertise, effective contract administration and leadership to your organization. It would be a pleasure to meet within the next few weeks and discuss how my qualifications, experience, and capabilities will best fit the needs of your outfit.

Mathew K. on ContractsCounsel
View Mathew
Member Since:
February 1, 2022

Mathew K.

Founding Attorney
Free Consultation
Get Free Proposal
Illinois
7 Yrs Experience
Licensed in IL
DePaul University College of Law

Kerbis' practice includes business and real estate transactions, estate planning, and limited scope litigation consulting. Mathew has negotiated deals involving multinational corporate franchises and has collectively helped hundreds of clients with their transactional, civil litigation, and appellate legal needs. Throughout his tenure as an American Bar Association leader, Mathew has advocated for legal education reform, interviewed ABA Presidents and State Appellate and Supreme Court Justices, and lobbied Congress on behalf of the legal profession. As a law student, Mathew served as an extern for the Honorable Justice Robert E. Gordon of the Illinois Appellate Court, First District.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call