Franchise Taxes
Learn what franchise tax is really all about and how it affects businesses in a number of states. Includes frequently asked questions.
Updated on October 4th, 2021
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Franchise taxes are imposed on corporations by 12 states for doing business or having a physical presence in the state. Despite the name, franchise taxes have nothing to do with franchises. In recent years, several states have lifted franchise taxes in order to encourage economic growth.
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How Franchise Tax is Calculated:
Franchise taxes are generally calculated using three different methods:
1. Net Worth. Some states tax on a percentage of the business's net worth.
2. Shareholder's Equity. Some states tax based on the value of the shareholder's equity in the company.
3. Flat Rate. Some states charge a flat rate that is determined by the gross receipts or paid-in capital within the business.
Franchise Taxes by State:
State | Franchise Tax |
|---|---|
Alabama | $0.25 - $1.75 per $1,000 of net worth (minimum tax of $100). |
Arkansas | $150 - $400 flat rate. 0.3% of outstanding capital stock for corporations/banks with stock, and mortgage loan corporations. |
California | Either $800 or net income x corporate tax rate (whichever is greater). |
Delaware | Minimum $50 filing fee. Tax calculated based on a number of shares (maximum $180,000 tax payment). |
Georgia | $125 - $5,000 flat rate. |
Illinois | 1/10 of 1% of paid-in capital. Minimum = $25, Maximum = $2,000,000. |
Louisiana | 4% - 8% of net income. |
New York | The greater of: 6.5% - 7.1% of net income, OR 0.15% of business capital, OR 0.75 to 1.5% of minimum taxable income, OR fixed dollar amount for gross receipts. |
North Carolina | $1.50 per $1,000 (C-Corporations); $200 for first $1,000,000 then $1.50 per $1,000 (S-Corporations). |
Oklahoma | $1.25 per $1,000 of capital (only applicable to corporations with $201,000 of capital or more). |
Tennessee | 0.25% of the greater of net worth or real and tangible property in Tennessee. The minimum tax is $100. |
Texas | Corps, PCs, LLCs, PLLCs and LLPs-domestic and foreign: 0.75% of gross receipts over $1,130,000. 0.375% for wholesalers and retailers. 0.331% for $20 Million or less in annual revenue and filing using the E-Z computation. |
FAQs:
Who pays Texas franchise tax?
Any entity that is legally recognized as a business in the state of Texas is subject to franchise tax as it is considered a "privilege tax" for doing business in the state. Only sole proprietorships and partnerships owned by individuals are exempt.
Is franchise tax the same as sales tax?
No. Franchise tax is a "privilege tax" that is applied to your business's overall net worth or shareholder equity, not individual sales.
Does Texas have a franchise tax?
Yes. Businesses in Texas are subject to a variety of franchise tax rates based on their earnings and legal status.
What is the franchise tax rate in Texas?
Private corporations, LLCs, private LLCs, and limited liability public companies are taxed at 0.75% for gross receipts over $1.3 Million. Wholesalers and retailers are taxed at 0.375%. If corporations use what is called the E-Z computation, they are taxed at 0.331% for any annual revenue below $20 Million.
What is a state franchise tax?
A state franchise tax is a "privilege tax" on business. The tax is administered at the state level and is currently imposed by 12 states.
Are franchise taxes tax deductible?
The IRS allows you to deduct franchise taxes on your business tax return because they are considered to be a fee or expense for doing business in your state.
What is the Franchise Tax Refund?
The franchise tax refund is a refund that businesses in the state of California may obtain from the Franchise Tax Board if they have overpaid on their franchise tax.
Why is it called the Franchise Tax Board?
The Franchise Tax Board is the official body that administers franchise taxes in the state of California.
Is corporate state franchise tax progressive?
Franchise tax is calculated using different methods and rates in different states. In states like Alabama, it is progressive with higher tax rates applying to larger businesses, but in other states, it is actually regressive.
What is NC Franchise Tax?
In North Carolina, businesses are subject to a franchise tax or "privilege tax" for having operations in the state. C-corporations are chared $1.50 per $1000 of income, while S-corporations are taxed $200 for the first $1,000,000, and then $1.50 for every $1,000 thereafter.
What is Oklahoma Franchise Tax?
For corporations with capital of $201,000 or more, the state of Oklahoma charges a franchise tax of $1.25 per $1,000 of capital.
What are franchise and excise taxes?
A franchise tax is a state tax on the overall earnings or net worth of a business. An excise tax is a tax on the sale of specific goods, like gasoline. Excise taxes are federally regulated and included in the price of goods.