Franchise tax is a state-level tax on the privilege of doing business, or simply existing as a legal entity, in a state. Unlike income taxes based solely on profits, franchise taxes are usually owed whether or not the business made money, and states compute them on net worth, capital stock, authorized shares, net income, taxable margin, or a flat annual amount.
In some states franchise tax is reported on a combined return with state income tax; in others it's filed separately, often with the Secretary of State rather than the revenue department. Similar taxes go by other names: Alabama's business privilege tax, Georgia's net worth tax, Texas's margin tax, and the annual tax Delaware charges LLCs and LPs.
How franchise tax varies by state
The base, the rate, and the collecting agency change from state to state.
California
Corporations report California franchise tax on Form 100, the combined "California Corporation Franchise or Income Tax Return." C corporations other than banks and financial corporations pay 8.84% of net income, per the 2025 Form 100 booklet.
Newly incorporated or qualified corporations are generally exempt from the $800 minimum franchise tax for their first taxable year, per FTB corporations guidance; a separate exception applies if the corporation did no business in California and its tax year was 15 days or fewer. Outside those exceptions, the $800 minimum is owed whether the corporation is active, inactive, or operating at a loss.
Under California's LLC filing rules, LLCs pay an $800 annual tax, generally due the 15th day of the fourth month of the tax year (April 15 for calendar-year LLCs, though weekends, holidays, and filing-year extensions can shift the exact date; confirm against the current FTB instructions each year).
The first-year exemption applies only to LLCs, LPs, and LLPs that organized, registered, or filed with the California Secretary of State on or after January 1, 2021 and before January 1, 2024. LLCs with total California income of $250,000 or more also owe an LLC fee, which is based on total California income rather than gross receipts alone:
Total California income | LLC fee |
|---|---|
$250,000 to $499,999 | $900 |
$500,000 to $999,999 | $2,500 |
$1,000,000 to $4,999,999 | $6,000 |
$5,000,000 or more | $11,790 |
Wisconsin
Wisconsin imposes both a corporate income tax and a Wisconsin corporate franchise tax on corporations, but a corporation pays only one. Wis. Stat. § 71.23(2) imposes the franchise tax, while § 71.23(1) taxes corporations not subject to the franchise tax under the income tax instead. Both are measured by net income at a 7.9% rate on the same return, Form 4 or Form 6 for combined groups. Wisconsin annual reports filed with the DFI are compliance filings, not tax returns.
Delaware
Delaware corporations can calculate their franchise tax under two methods and generally pay the lower result, subject to the applicable minimums and maximums. Per the Division of Corporations, the Authorized Shares Method runs $175 for 5,000 shares or fewer and $250 for 5,001 to 10,000, plus $85 per additional 10,000 shares; the Assumed Par Value Capital Method charges $400 per million of assumed par value capital, minimum $400. Both cap at $200,000, or $250,000 for Large Corporate Filers, and non-exempt corporations owe a $50 annual report filing fee.
Taxes and the annual report are generally due March 1 each year; confirm the current date against the Division of Corporations before filing. Corporations owing $5,000 or more must also make quarterly estimated payments (40% by June 1, 20% by September 1, 20% by December 1, and the remainder by March 1).
Delaware LLCs, LPs, and general partnerships pay a flat annual tax, with no annual report. Per the Division of Corporations' LLC/LP/GP tax instructions and 6 Del. C. § 18-1107(b), the tax is $400 per year, up from $300, following House Bill 400 of the 153rd General Assembly, which the Governor signed on May 21, 2026 and applied retroactively to the 2026 tax year.
A $200 late penalty applies under the LLC-specific penalty provision of 6 Del. C. § 18-1107(d). Delaware's official wording is that the annual tax for the prior year is due on or before June 1: the tax for the 2026 tax year, for example, is due June 1, 2027.
Why franchise tax filings get missed
Due dates, agencies, and calculations vary widely by state, and these filings sit between whoever handles your other state filings and your tax accountant.
Illinois folds its franchise tax into the corporate annual report at 0.1% of paid-in capital allocated to Illinois, per 805 ILCS 5/14.05, with a minimum $25 tax. The exemption on the first portion of franchise tax liability has phased up in stages under 805 ILCS 5/15.65: $1,000 for 2021 through 2023, $5,000 for 2024, $10,000 for 2025, and $100,000 for 2026, so most small and mid-sized Illinois corporations owe little or no franchise tax this year. ILSOS filing instructions also bar online filing for corporations with out-of-state property or business, or a change in paid-in capital, so those reports must be filed on paper.
A registered agent's core statutory duty is limited to forwarding process, notices, and demands, not preparing or filing tax returns. Virginia's LLC statute, for example, states that forwarding process, notices, and demands is the sole duty of the registered agent, leaving tax preparation and filing with the entity and its members or managers.
Track and automate franchise tax filings with Discern
Franchise tax filings pile up fast once you're tracking obligations across states with different bases, agencies, and due dates. Discern tracks franchise tax obligations for your entities in every state where you operate and notifies you before each due date.
Delaware franchise tax for corporations, LLCs, and LPs is calculated and filed directly in the platform: for Delaware corporations, Discern runs both the Authorized Shares Method and the Assumed Par Value Capital Method and applies the lower result, and entities owing $5,000 or more get quarterly estimated-payment reminders. For franchise tax outside Delaware, including Illinois, Discern provides deadline tracking and notifications rather than filing; we recommend having your tax accountant prepare and file those returns.
For portfolios spread across many states, franchise tax tracking runs alongside Discern's digital annual report filing and registered agent service, so every entity's compliance calendar lives on one platform instead of scattered spreadsheets and accountant reminders.
Book a demo with Discern to see Delaware franchise tax automation in action.
Frequently asked questions about franchise tax
These are the questions finance and legal teams ask most often when sorting out which entities owe franchise tax and where.
Is franchise tax the same as income tax?
No, though the two overlap in some states. Wisconsin measures its franchise tax by net income and reports it on the same return as the income tax, while Delaware measures the corporate tax by authorized shares or assumed par value capital. Texas has no corporate income tax, and its franchise tax is computed on taxable margin, which the Texas Comptroller's overview generally defines as the lesser of 70% of total revenue, revenue minus cost of goods sold, revenue minus compensation, or (in applicable circumstances) revenue minus the statutory deduction.
Do LLCs owe franchise tax?
It depends on the state. California and Delaware both tax LLCs, as described above. In Texas, LLCs are taxable entities, but the no-tax-due threshold is $2.65 million for the 2026 report year and is adjusted periodically under Tax Code § 171.006. Entities at or below the threshold generally don't owe tax but must still file a Public Information Report or Ownership Information Report. Georgia's net worth tax generally applies to corporations; partnerships aren't subject to it, and an LLC is subject to the tax only if it's treated as a corporation for income tax purposes.
What happens if a franchise tax goes unpaid?
Loss of good standing comes first, then dissolution or forfeiture. In Delaware, a corporation that neglects or refuses for one year to pay its franchise tax or file a complete annual report has its charter voided under 8 Del. C. § 510, though the Secretary of State can grant additional time for good cause and provides notice before the charter becomes void. An LLC's certificate of formation is canceled after three years of unpaid annual tax under 6 Del. C. § 18-1108(a).
California R&TC § 23301 provides that a corporation's powers, rights, and privileges may be suspended for nonpayment; a suspended entity can't legally do business, sue or defend in court, or file termination documents until it pays outstanding balances, files delinquent returns, and submits a revivor request, per the FTB suspended entities page. In Texas, the Comptroller gives at least 45 days' notice before forfeiting an entity's right to transact business, during which the delinquency can be cured; after forfeiture, the entity can't sue or defend in a Texas court.
Updated on
2026-09-21
