What are franchise taxes?
Franchise taxes are often referred to as a “privilege tax” and are basically a fee that a business pays to a state for the privilege of incorporating or conducting business there. Unlike income tax, franchise taxes are not usually based on a company’s profits.
A business may be required to pay franchise taxes even if it has no net income or a loss during the tax year.
Franchise taxes vary significantly from state to state. Some states have no franchise tax at all. In states that do, it may be assessed as:
- A flat fee,
- A fee based on gross revenue,
- A fee based on net worth, or
- A fee calculated using another method.
Some states use a different name altogether—for example, Alabama’s franchise tax is called a business privilege tax.
Franchise taxes are distinct from income taxes. Some states assess one or the other, while a few, such as Louisiana, impose both a franchise tax and an income tax on the same business.
When are franchise taxes due?
The due date for franchise taxes depends on your business type and the states where your company operates. Each state sets its own deadlines.
For example:
- Delaware: Corporate franchise taxes are due March 1 each year; LLC and limited partnership franchise taxes are due June 1.
- Texas: Franchise taxes are due May 15 annually.
- Missouri: The due date is based on your business’s tax year (typically the 15th day of the fourth month after the business period begins).
It is important to confirm franchise tax deadlines in every state where your company is registered or does business. Each state’s Department of Revenue or Secretary of State website provides due date information and online payment portals.
Where do I pay franchise taxes?
If your business is required to pay franchise taxes, payment should be made to the state agency where your business is registered or operates.
If your company is registered in multiple states, you may need to file and pay separate franchise tax returns for each state.
For current filing details, visit the state tax or business authority website in the applicable state. A directory of state tax agencies can be found on IRS.gov – State Government Websites.
How do franchise taxes work in some key states?
Franchise tax laws differ greatly between states. Here are some examples of how they work in several key jurisdictions:
- Delaware: Corporations must pay franchise taxes by March 1 each year. LLCs and limited partnerships must pay by June 1. Delaware corporations pay a minimum of $175 annually, but the amount can be higher depending on the corporation’s authorized shares or assumed par value. LLCs and limited partnerships pay a flat $300 fee.
- California: Businesses generally pay an $800 annual franchise tax. For corporations, this is the minimum tax, though it may be higher based on net income. Due dates depend on the entity type and tax year.
- New York: New York has one of the more complicated franchise tax policies. Corporations must calculate their franchise tax using multiple methods and pay whichever amount is highest. While the franchise tax applies mainly to corporations, LLCs and partnerships pay a separate annual filing fee, which functions similarly to a franchise tax.
- Georgia: Georgia imposes a net worth tax (essentially a franchise tax). Depending on the company’s net worth, the tax can be up to $5,000 annually. Due dates vary by entity type and fiscal year.
- North Carolina: Corporations pay a franchise tax with a minimum payment of $200. Most businesses must pay by April 15, unless operating on a fiscal year.
- Illinois: Illinois previously planned to repeal its franchise tax but later reinstated it. There are several calculation methods, and the amount owed depends on the method and business type.
Because these laws and amounts can change, always check with your state’s Department of Revenue for current franchise tax requirements.
Are franchise taxes avoidable?
If your business operates or is registered in a state that imposes a franchise tax, you generally must pay it if you meet the state’s requirements.
However, some states exempt smaller businesses or those below a revenue threshold. For example, Texas has a franchise tax, but does not require payment of franchise tax if a business’s total annual revenue is below a certain amount (the threshold is periodically adjusted for inflation).
What happens if I don't pay my franchise taxes?
Failing to pay required franchise taxes on time can result in penalties, interest, and loss of good standing with the state.
If unpaid for too long, your business may:
- Receive collection notices or face tax liens,
- Lose its legal standing to operate in the state, or
- Lose limited liability protection, which could expose owners to personal liability for business debts.
Timely payment helps your business maintain good standing and avoid unnecessary costs or legal complications.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
