“A franchise tax is a tax that some U.S. states impose on businesses for the privilege of operating within their jurisdiction. Despite its name, it is not limited to franchises. Instead, it applies to various types of businesses, including corporations, partnerships, and LLCs, depending on state laws.
Franchise tax is not based on income but rather on factors like the business’s net worth, equity, or capital holdings. It is considered a cost of doing business and is separate from federal or state income taxes.
Key Highlights of Franchise Tax
Not
Federal
Imposed at the state level; not all states have franchise taxes.
Varies
by State
Examples include California ($800 minimum tax), Texas (margin-based tax), and Delaware (authorized shares or par value method).
Applies to
Multiple Entities
Corporations, LLCs, partnerships, and other entities may be subject to this tax.
Franchise
Tax
It is a deductible expense and is a mandatory fee.
Myth & Facts about Franchise Tax
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