What is a franchise tax?
A tax a state charges companies for the privilege of being organized in the state or doing business there. The name comes from the legal "franchise" to operate as a company, not from franchising a brand. Some states call it a franchise tax, others an annual tax, privilege tax or minimum tax.
How is it different from income tax?
State income tax is based on profit. A franchise tax is usually based on something else, such as revenue, net worth or capital, or is a flat minimum. That is why it can be owed in a year with no profit at all. Some states charge both.
How do states calculate it?
| State | How it works for LLCs |
|---|---|
| Texas | A franchise tax on a measure of margin for taxable entities including LLCs. For reports due in 2026, no tax is due at or below $2.65 million of annualized total revenue, but the entity still files a Public Information Report or Ownership Information Report. Reports are due May 15 |
| Delaware | A flat annual tax on LLCs, $400 under the state's current Certificate of Formation form, due June 1, whether or not the LLC traded |
| California | An $800 minimum annual tax on LLCs organized, registered or doing business in California, plus an additional fee once California income reaches set levels |
| Wyoming | An annual report license tax of $60, or $0.0002 per dollar of Wyoming assets if higher |
Other states use net worth or capital-based taxes, or have no such tax for LLCs at all. Check each state where the company is formed or registered. See the Texas franchise tax report and Washington's business and occupation tax.
When does an LLC owe it?
Generally when the LLC is formed in the state, registered there as a foreign LLC, or doing business there under that state's rules. Forming in one state and operating in another can mean paying both. See home state or another state.
What happens if you do not pay?
Penalties and interest, then loss of good standing, and eventually forfeiture or dissolution of the company in the state. A company that loses its standing can struggle to open accounts, sign contracts or defend itself in court until it is reinstated. See what a dormant LLC still has to file.
Is it deductible federally?
State franchise taxes paid by a business are generally deductible as a business expense on its federal return. See deductible business expenses.
How do the costs compare across states?
See how much an LLC costs for formation fees and yearly charges side by side.
Not sure what your state charges?
We identify every state tax and fee your company owes where it is formed and registered, and file them on time.
Questions people ask
What is a franchise tax?
A state tax for the privilege of existing or doing business as a company in the state, often based on revenue, net worth or a flat minimum rather than profit.
Do I pay franchise tax if my LLC made a loss?
Often yes, because many franchise taxes are not based on profit.
Does Texas charge franchise tax on small LLCs?
No tax is due at or below $2.65 million of annualized revenue for 2026 reports, but the LLC still files an information report.
How much is the Delaware LLC franchise tax?
Delaware's flat annual LLC tax is $400 under its current form, due June 1.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- Texas Comptroller: 2026 franchise tax report forms and no tax due threshold
- Delaware Division of Corporations: Certificate of Formation form, rev. 8/2026
- California Revenue and Taxation Code section 17941: LLC annual tax
- Wyoming Secretary of State: Business Division fee schedule, effective July 1, 2026
Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.
Related guides
More in Business tax by entity type
This guide is general information. It is not tax or legal advice for your situation.