Choosing where to incorporate your business just got more expensive. While states like Delaware and Texas collect hundreds of millions in franchise taxes, charging companies for the right to exist, a number of states take a different approach.
These states fund their operations without imposing a separate, entity-level franchise or privilege tax in addition to their main corporate income or gross-receipts tax.
The savings can be substantial. A growing SaaS company might pay Delaware $75,000 annually in franchise tax while paying $0 in Wyoming for similar legal protections. But “no franchise tax” doesn't mean “no taxes at all,” as each state finds alternative ways to fund operations, from gross receipts taxes to higher sales taxes, and the real costs can surprise you.
The states below are often marketed as "no franchise tax" jurisdictions, though some impose privilege-style taxes under different names. Each state still collects revenue somehow, so consider the complete picture before choosing a home base.
Oregon's corporate excise tax is explicitly described by the Oregon Department of Revenue as a tax "for the privilege of doing business in Oregon," making it functionally a franchise-style tax even though it's not called one. Oregon also imposes a separate Corporate Activity Tax (CAT) on gross receipts.
Note on Florida: Florida's tax is officially named the "corporate income/franchise tax" and is imposed for the privilege of conducting business or existing in Florida. While often listed as a "no franchise tax" state, Florida does impose a privilege-style tax under state law.
Note on New Mexico: New Mexico imposes a $50 annual corporate franchise tax on corporations that have or exercise their corporate franchise in New Mexico, regardless of whether the corporation owes corporate income tax.
Three patterns stand out:
The key point: a zero franchise tax certificate won't free you from corporate income, gross receipts, sales, or employment taxes. Calculate the numbers for your specific revenue model before celebrating.
Several states show why the franchise tax landscape keeps changing:
Oklahoma repealed its corporate franchise tax effective for tax years beginning in 2024 (last returns were filed for tax year 2023). Local accountants report that the change mostly benefits capital-intensive companies that previously paid six-figure franchise bills under the old 0.125% asset-based tax.
The state scrapped its corporate franchise tax effective in 2015, while also gradually reducing business property taxes. West Virginia's economic development materials highlight the repeal as part of a broader pro-business tax reform package.
Louisiana has enacted legislation to repeal its corporation franchise tax for franchise tax periods beginning on or after January 1, 2026.
Mississippi is in the middle of a statutory phase-out that will fully repeal its corporate franchise tax by January 1, 2028.
The trend clearly favors repeal. Lawmakers in Louisiana and Mississippi have proposed similar bills in recent sessions, betting that removing the franchise tax will attract new entities and, eventually, broader payroll and sales-tax growth.
If your business is asset-heavy or runs on thin margins, watch these debates closely. The next state to drop the tax could save you real money.
No franchise tax doesn't mean tax-free. Each no-franchise-tax state still needs revenue, and they use four very different approaches. Understanding how these systems work and who benefits most will help you find the right fit for your company.
Alaska, Florida, and Montana simply replace "franchise" with "income." Alaska funds much of its budget with oil royalties, but it also charges a traditional corporate income tax that increases with profit, so you only pay when you're profitable. Florida takes a similar approach with a flat 5.5% rate on net income, while Montana uses a graduated schedule.
If your margins are solid and you value expense and loss deductions, these states will feel familiar, as your accountant can balance bad years against good ones just like on your federal return.
Washington's Business & Occupation (B&O) tax takes a slice of every dollar you collect, with rates reaching 1.5% depending on your industry. Ohio's Commercial Activity Tax (CAT) is milder at 0.26% on receipts above $6 million, but it still hurts low-margin operations since deductions aren't allowed.
If you run a SaaS business with 80% margins, a receipt-based tax might be painless. If you sell groceries at 5% margins, every fraction of a percent matters.
South Dakota and Wyoming have no franchise tax, no corporate income tax, and no gross-receipts tax. You'll still pay sales, property, and employment taxes, but your entity-level cost is basically just the annual report fee.
However, for entities with significant assets in Wyoming, the annual license tax can be materially more than the $60 minimum, and South Dakota's bank franchise tax can be substantial for financial institutions.
Asset-holding companies, real-estate funds, and similar structures that generate little in-state revenue but hold significant value often choose these states for exactly this reason.
New Hampshire offers a unique hybrid approach. Its Business Enterprise Tax hits compensation, interest, and dividends at 0.55%, while the Business Profits Tax takes 7.5% from net income.
This split lets early startups keep their BET bill small during initial, payroll-heavy years, yet the state still shares in success once profits appear.
If your cash flow varies widely, corporate income tax states give you room to breathe during downturns. High-margin, low-expense operations can often handle a gross-receipts formula with minimal pain. Asset-heavy entities looking for maximum tax efficiency gravitate toward South Dakota or Wyoming.
If your payroll dwarfs your profits, New Hampshire's hybrid might be ideal. Match the tax structure, not just the rate, to how your business actually makes money, and dropping the franchise tax becomes one piece of a smarter overall strategy.
Picking a state just because it has no franchise tax seems like an easy win, but several factors matter more than tax savings for many businesses.
Delaware's Court of Chancery specializes in business disputes and has a centuries-long history of precedents, which reduces legal uncertainty that venture capital firms value. No-franchise-tax states like Wyoming and Nevada offer strong asset protection but lack deep case law. If you anticipate investor disputes, complex M&A, or major equity rounds, Delaware's legal framework often justifies its franchise tax costs.
When Delaware's franchise tax makes sense:
When no-franchise-tax states make more sense:
Every state requires annual reports and registered agents. Nevada's privacy protections increase agent costs, while some states impose steep penalties for missing deadlines by a single day. Calculate total compliance costs, not just franchise tax.
Incorporating in Wyoming but selling primarily in California forces foreign registration, California's $800 minimum franchise tax, and double compliance costs. Apportionment rules typically allocate most income to high-tax states, erasing initial savings.
Match incentives to your sector: Wyoming does not offer a state-level R&D income tax credit, while Alaska provides natural resource incentives but little for software firms. Additionally, gross receipts taxes in Washington or Ohio can exceed any franchise tax you avoided.
Choosing a “no-franchise-tax state” for formation requires strategic tax planning. And once you've made that choice, the ongoing compliance burden from annual reports to registered agent requirements can quickly overwhelm your administrative capacity, especially as you expand into multiple states.
Discern eliminates this complexity by automating your compliance across all 51 jurisdictions, whether you're incorporated in Wyoming or Delaware. Our platform:
Ready to automate your compliance strategy? Book a demo with Discern today.
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