GlossaryUS
What is franchise tax?
Annual state privilege tax on companies
Short answer
Franchise tax is an annual tax some US states charge companies formed or doing business in the state. Its name and rules vary: in Texas LLCs are covered too, while in Delaware corporations pay franchise tax every year.
Explained
Texas franchise tax is a privilege tax on each taxable entity formed in Texas or doing business there, including single-member LLCs. The annual report is due on 15 May. Since the 2024 report year, small entities with no tax due no longer file a franchise tax report but must still file an information report (Public Information Report) every year.
An entity formed outside Texas can also come within franchise tax if its Texas receipts exceed a set amount, and an out-of-state entity with a Texas use tax permit is presumed to have nexus in Texas. In Delaware, corporations pay their annual report and franchise tax by 1 March each year.
Good to know
- In Texas, not filing the information report can cost the entity its right to do business in Texas.
- Rates and thresholds change by report year; the obligation depends on the company’s figures.
- Franchise tax is a state tax, separate from federal IRS filings.
Official sources
- Texas Comptroller — Franchise tax
- Delaware Division of Corporations — Pay taxes and file annual reports
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This page is general information, not legal or tax advice. Rules change; check the official source for the latest position or talk to us.
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