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Franchise Tax Facts

Published on Mar 5, 2012

Summary

A Franchise Tax is imposed on a business simply for being incorporated or registered to transact business in a particular state.
Franchise-Tax-FactsWith a name like “Franchise Tax,” one might think this would be a tax imposed on franchises. But in fact, a Franchise Tax is imposed on a business simply for being incorporated or registered to transact business in a particular state. In other words, it’s a tax on the privilege of carrying on business as a corporation or LLC in a state.

How a Franchise Tax is Measured

The method for calculating Franchise Tax varies by state. Common methods include:
  • Business income
  • Business assets (total value of capital or stock)
  • The number of outstanding shares of corporate stock, and the par value of those shares
  • Any combination of above
  • A flat fee
  • In some states, the Franchise Tax is simply an income tax

When is Your Franchise Tax Due?

The answer to this question depends on the state(s) in which you are doing business. Many states have due dates tethered to your anniversary date (the date your small business was formed). For example, if an LLC was formed on February 15th, the due date for that LLC’s Annual Report and Franchise Tax would be February of each year. Other states choose one date that the annual report and/or Franchise Tax is due. This may be consistent for all business types or it may vary by business type. One example is Delaware, where Annual Reports and Franchise Taxes for corporations are due March 1st, while the due date for LLCs is June 1st.

More on Delaware’s Franchise Tax and Annual Report

Since Delaware is such a popular state for incorporation, let’s take a closer look at how its Franchise Tax and Annual Report work. According to the state of Delaware, “all corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a Franchise Tax. Exempt domestic corporations do not pay a tax but must file an Annual Report. The Annual Report filing fee for all other domestic corporations is $50.00 plus taxes due upon filing of the Annual Report. Taxes and Annual Reports are to be received no later than March 1st of each year. The minimum tax is $75.00 for corporations using the Authorized Shares method and a minimum tax of $350.00 for corporations using the Assumed Par Value Capital Method. All corporations using either method will have a maximum tax of $180,000.00. Taxpayers owing $5,000.00 or more pay estimated taxes in quarterly installments, with 40% due June 1; 20% due by September 1; 20% due by December 1; and the remainder due March 1st. The penalty for not filing a completed Annual Report on or before March 1st is $125.00. Interest of 1.5% per month is applied to any unpaid tax balance.”

Want to Learn More About Your State's Requirements?

Check out our free state incorporation guides for more information on your state’s corporation formation requirements and corporation ongoing requirements, as well as your state’s LLC formation requirements and LLC ongoing requirements. Business Blogs blog