Question
Which states require franchise taxes?
I’m registering a business and want to know which states charge franchise taxes and how those fees affect my business each year.
Answer
Though not all annual fees are technically franchise taxes, many states require some form of franchise tax, annual business tax, or minimum business fee for LLCs and corporations. But the rules vary widely by state. Some states charge a flat yearly fee, while others base the tax on income, revenue, or business activity.
A business may owe franchise tax simply for being registered or authorized to operate in a state, even if the business earns little or no profit there.
Which states commonly charge franchise taxes?
Many states impose franchise taxes or similar entity-level business fees on LLCs, corporations, or foreign-qualified businesses. States commonly known for franchise taxes or annual entity taxes include:
- California.
- Delaware.
- Texas.
- Tennessee.
- New York.
- Illinois.
- Alabama.
Some states use different names, such as annual registration fees, privilege taxes, business entity taxes or margin taxes.
A few states do not impose traditional franchise taxes, though businesses may still owe annual report fees or other state taxes. State tax laws change periodically, so businesses should verify current requirements directly with the applicable state agency.
How do franchise tax rules differ by state?
States may calculate franchise tax based on:
- A flat annual fee.
- Business income or gross receipts.
- Net worth or assets.
- The number of authorized shares for corporations.
Some states require separate annual reports and franchise tax filings, while others combine them into one filing.
Businesses operating in multiple states may owe franchise taxes or similar fees in more than one state.
What to do next…
- Check franchise tax rules in every state where the business is formed or registered.
- Review annual filing deadlines and minimum payment requirements.
- Budget for ongoing state fees before expanding into new states.
- Keep franchise tax filings and annual reports organized together.
What to consider in your specific situation
Franchise tax obligations can vary depending on the business structure, states involved, and amount of business activity.
- Whether the business is an LLC, corporation, or partnership.
- The states where the business is formed or foreign qualified.
- State rules for minimum taxes, annual fees, or revenue thresholds.
- Multi-state operations or remote employees.
- Whether annual reports are tied to franchise tax filings.
- Penalties and reinstatement rules for missed payments or reports.
Since every situation is different, consider getting more information through Rocket Copilot or an attorney review to move forward more confidently.
At Rocket Lawyer, we follow a rigorous editorial policy to ensure every article is helpful, clear, and as accurate and up-to-date as possible. This page was created, edited and reviewed by trained editorial staff who specialize in translating complex legal topics into plain language, then reviewed by experienced attorneys to ensure legal accuracy.
Please note: This page offers general legal information, 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 an Attorney.
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Explore more about franchise taxes
Some states require businesses to pay a franchise tax for the privilege of operating or being registered there. These questions explain what franchise tax is, which states impose it, how it may be calculated, and how it differs from income tax.
- What is franchise tax for businesses?
- Which states require franchise taxes?
- How is franchise tax calculated?
- What is the difference between franchise tax and income tax?
- See even more questions about required business filings and deadlines
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Disclosures
- This page offers general legal information, 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 an Attorney.