FRANCHISE
Who Pays, How Much, and Why It Matters Who Pays, How Much, and Why It Matters
INTRODUCTION
Did you know that some businesses must pay franchise tax even if they make no profit?
This tax is required in some states just for operating a business.
Let’s break it down so you understand who pays, how much, and how to stay compliant.
WHAT IS FRANCHISE TAX?
A state-imposed tax on businesses for the right to operate.
Different from income tax, which is based on profit.
Applies even if your business makes no money.
WHO HAS TO PAY FRANCHISE TAX?
Corporations (C-Corps, S-Corps)
Limited Liability Companies (LLCs) (in some states)
Limited Partnerships (LPs) & Limited Liability Partnerships (LLPs)
Sole Proprietors & General Partnerships (usually exempt)
Nonprofits (often exempt)
WHICH STATES HAVE FRANCHISE TAX?
Some states charge franchise tax, while others don’t.
Examples:
�� California – Minimum $800 tax
�� Texas – Based on revenue (margin tax)
�� Delaware – Based on shares issued
�� New York – Based on income or capital
�� Some states (like Nevada & Wyoming) have NO franchise tax!
HOW IS FRANCHISE TAX CALCULATED?
Flat Fee: A fixed amount (e.g., California charges $800).
Revenue-Based: A percentage of total revenue (e.g., Texas).
Capital-Based: Based on business assets or stock value (e.g., Delaware).
�� Example: A Texas business with $2 million revenue at 0.375% = $7,500 franchise tax.
HOW TO PAY FRANCHISE TAX
Check your state’s tax website.
Gather business details (ID, revenue, financials).
Complete the correct tax form.
Pay online or by mail.
File on time to avoid penalties!
WHAT HAPPENS IF YOU DON’T PAY?
Penalties & Interest Charges – More fees over time.
Business Suspension – Your business status could be revoked.
Legal Issues – You may lose rights to operate or sign contracts.
�� In some states, failing to pay franchise tax can shut down your business!
HOW TO REDUCE YOUR FRANCHISE TAX
Choose a state with no franchise tax (e.g., Nevada, Wyoming).
Check if you qualify for exemptions.
Stay below state revenue thresholds for tax relief.
Pay before the deadline to avoid penalties.
Consult a tax expert for legal tax-saving strategies.
Smart tax planning can save your business money!
CONCLUSION
Franchise tax is a state tax on business operations.
It applies even if you don’t make a profit.
Each state has different rules and tax rates.
Not paying can lead to penalties and business suspension.
Plan wisely to reduce tax costs and stay compliant.
THANK YOU