Franchise Taxes Across the US: A State-by-State Breakdown for Entrepreneurs

Corporate report fees, filing requirements, and the taxes that may apply when a business actually operates in the state.

WHAT IS A STATE FRANCHISE TAX?

A franchise tax is generally a state-level tax imposed on certain businesses for the privilege of doing business in that state.

Despite the name, it is not necessarily related to owning a traditional franchise such as a restaurant or retail franchise.

A business can potentially be subject to a franchise tax simply because it is organized in a state or has sufficient business activity there, depending on that state's rules.

The tax may be calculated using different measures.

For example, a state may look at:

• Business revenue
• Capital
• Net worth
• Assets
• A fixed minimum amount
• A combination of different measures

This is one reason why comparing franchise tax rates from state to state can be difficult.

A 0.5% rate in one state does not necessarily mean that the business will pay less than a business facing a higher rate somewhere else. The taxable base and minimum tax can be very different.

FRANCHISE TAX VS. CORPORATE INCOME TAX

Franchise tax and corporate income tax are not automatically the same thing.

Corporate income tax is generally based on taxable income. Franchise taxes can use a different tax base, such as capital, net worth, gross receipts, or another state-defined measure.

Some states also use alternative business taxes instead of a traditional corporate income tax.

For example, Texas does not impose a traditional corporate income tax but imposes a franchise tax based on its margin tax system. For 2026 and 2027, Texas lists a $2.65 million no-tax-due threshold, with rates of 0.375% for retail or wholesale businesses and 0.75% for other businesses.

The important point for entrepreneurs is that no corporate income tax does not necessarily mean no state business tax.

WHY STATE-BY-STATE COMPARISON MATTERS

A business may choose to form an LLC or corporation in one state while conducting business in another.

That can create additional registration and tax obligations.

For example, a company formed in Delaware but operating primarily in another state may need to register as a foreign entity in the state where it actually conducts business.

This can result in additional:

• State registration fees
• Annual reports
• Franchise or business taxes
• Registered agent costs
• Income or gross receipts taxes
• Local tax obligations

The IRS itself directs business owners to state government resources for state-level business requirements because these obligations vary by state.

So, the state where a business is formed should not automatically be treated as the only state that matters.

STATE-BY-STATE FRANCHISE TAX SNAPSHOT

The table below provides a practical 2026 overview. It is intended as a planning reference rather than a substitute for checking the specific rules for the business entity and tax year.

An important distinction is that annual report fees and franchise taxes are separate concepts. A state can have no traditional franchise tax but still require an annual filing fee. Likewise, some states impose a business tax that functions differently from a traditional franchise tax.

State rules change frequently, and the tax treatment can differ substantially between LLCs, S corporations, C corporations, partnerships, and other entity types. The table should therefore be used as a starting point rather than a final tax calculation.

For example, Louisiana's franchise tax was repealed for tax periods beginning on or after January 1, 2026, while Mississippi is continuing its phaseout of its corporate franchise tax, with further changes scheduled before full repeal for tax years beginning in 2028.

UNDERSTANDING ANNUAL CORPORATE REPORT FEES

Franchise taxes are only one part of state compliance.

Many businesses also have to submit an annual or biennial report to the state's business filing agency.

These reports generally keep information such as the following current:

• Business address
• Officers or managers
• Directors
• Registered agent
• Ownership or management information
• Principal business information

The fee can range significantly depending on the state and entity type.

For example, current 2026 state filing data shows recurring LLC reporting or maintenance costs ranging from no annual report fee in some states to several hundred dollars in others. California's $800 minimum franchise tax is separate from its statement filing requirements, while Delaware's alternative entities have a separate annual tax.

This distinction matters because an entrepreneur might look at a state's franchise tax and overlook the separate cost of maintaining the entity.

STATES WITHOUT A TRADITIONAL FRANCHISE TAX

Several states do not impose a traditional franchise tax on businesses in the same way as states such as California, Delaware, or Texas.

But that does not mean operating there is tax-free.

A business may still face:

• Corporate income tax
• Gross receipts tax
• Business privilege tax
• Business and occupation tax
• Excise tax
• Annual report fees
• Local business taxes

Washington is a useful example.

The state does not impose a traditional corporate income tax but has a Business & Occupation tax based on gross receipts for businesses subject to the tax.

Ohio similarly uses the Commercial Activity Tax rather than a traditional corporate income tax.

This is why a business franchise tax comparison should consider the entire state tax structure rather than one-line item.

CALIFORNIA: A HIGH-VISIBILITY FRANCHISE TAX EXAMPLE

California illustrates why minimum taxes matter.

Many corporations, LLCs, and other entities doing business in California can be subject to the state's franchise tax system.

For many entities, the minimum franchise tax is $800 annually.

That means a business cannot necessarily assume that having a low-profit year eliminates the state-level tax obligation.

The exact rules depend on the entity and applicable California tax requirements, so entrepreneurs should review the state's rules before assuming that a new or low-revenue business has no filing or payment obligation.

DELAWARE: FRANCHISE TAX DEPENDS ON ENTITY TYPE

Delaware is another important example because its tax system differs between corporations and alternative entities.

Corporations can calculate Delaware franchise tax under different methods, while LLCs and other alternative entities generally have an annual tax rather than the same corporation calculation.

For 2026, Delaware's alternative entity annual tax is $400, while corporations have separate franchise tax calculations based on factors such as authorized shares or assumed par value.

This demonstrates why entrepreneurs should not compare Delaware's franchise tax using one number for every business.

The entity type matters.

TEXAS: A DIFFERENT TYPE OF FRANCHISE TAX

Texas provides another useful example.

Texas franchise tax is based on a business's taxable margin rather than simply applying a traditional corporate income tax rate.

For 2026 and 2027:

• The no-tax-due threshold is $2.65 million
• The retail and wholesale rate is 0.375%
• The rate for businesses other than retail and wholesale is 0.75%
• The EZ Computation rate is 0.331% for eligible businesses

Texas also changed its reporting structure for businesses below the no-tax-due threshold. A qualifying entity generally does not file a No Tax Due Report but still has to file the applicable Public Information Report or Ownership Information Report.

That is an important compliance distinction.

No tax due does not always mean no filing requirement.

ANNUAL REPORT FEES CAN BE EASY TO OVERLOOK

Entrepreneurs often focus on the cost of forming a company.

But the recurring costs may be more important over several years.

Depending on the state, a business could have:

• Annual report fees
• Biennial report fees
• Franchise taxes
• Minimum business taxes
• Registered agent expenses
• State income tax
• Gross receipts taxes
• Local business taxes

For example, current 2026 fee data shows that some states have no regular LLC annual report fee, while others charge annual or biennial fees ranging from relatively small amounts to several hundred dollars.

The exact amount can also differ between an LLC and a corporation.

WHAT ENTREPRENEURS SHOULD COMPARE BEFORE CHOOSING A STATE

A state should not be evaluated based on its franchise tax rate alone.

A more complete comparison should include at least these factors.

1. Franchise Tax

Determine whether the state imposes a franchise tax and what the tax base is.

Is it based on:

• Revenue?
• Capital?
• Net worth?
• Assets?
• A flat amount?
• Another state-defined measure?

2. Minimum Tax

Check whether the state imposes a minimum tax even when the business has limited income.

Minimum taxes can have a larger impact on startups and smaller businesses than percentage rates.

3. Annual Report Fees

Find out whether the business must file an annual or biennial report and how much the state charges.

4. Corporate Income Tax

A state without a franchise tax may still impose a corporate income tax.

The reverse can also be true.

5. Gross Receipts Taxes

Some states use gross receipts-based taxes instead of or alongside traditional corporate taxes.

These can produce very different results from an income-based tax.

6. Foreign Qualification

If the business is formed in one state but operates in another, determine whether it needs to register as a foreign entity.

This can create another layer of annual filings and state fees.

7. Local Taxes

Cities and counties can impose additional business taxes, licenses, or fees.

State-level research alone may therefore not provide the complete cost picture.

WHY FORMATION STATE AND OPERATING STATE ARE NOT ALWAYS THE SAME

An entrepreneur might hear that a particular state is attractive for business formation and assume that incorporating there eliminates obligations in the state where the business actually operates.

That is not necessarily the case.

Suppose an entrepreneur forms an LLC in State A but maintains an office, employees, inventory, or significant business activity in State B.

State B may consider the business to be doing business there and require foreign registration and state tax filings.

The business could therefore have obligations in both states.

This can make a seemingly inexpensive formation choice more complicated over time.

A SIMPLE BUSINESS FRANCHISE TAX COMPARISON FRAMEWORK

Before forming an entity or expanding into another state, entrepreneurs can create a comparison using five categories.

This approach gives business owners a more realistic picture than simply comparing advertised franchise tax rates.

COMMON MISTAKES ENTREPRENEURS MAKE

Looking Only at the Tax Rate

A low percentage does not necessarily mean a low total tax cost.

The tax base and minimum tax matter.

Confusing Annual Reports with Franchise Taxes

An annual report is generally a business information filing.

A franchise tax is a tax obligation.

A state may require one, both, or neither depending on the entity and circumstances.

Assuming an LLC and Corporation Have the Same Costs

They often do not.

The same state may apply different tax calculations, minimums, or filing fees to different entity types.

Forgetting About Foreign Qualification

Forming a company in one state does not automatically eliminate filing obligations where the business actually operates.

Missing Filing Deadlines

A business can remain responsible for annual reports or tax filings even when little or no tax is ultimately owed.

Texas, for example, requires certain entities below the no-tax-due threshold to file a Public Information Report or Ownership Information Report.

Treating 2026 Rules as Permanent

State tax systems change.

Rates, minimums, thresholds, filing fees, and reporting rules can change from one tax year to another.

Mississippi's franchise tax phaseout is one example of how the state-level landscape can change over time.

HOW TO MANAGE MULTI-STATE FRANCHISE TAX COMPLIANCE

For a business operating across several states, a simple compliance system can make state obligations easier to manage.

Start by maintaining a list of every state where the business:

• Is legally registered
• Has employees
• Has offices
• Owns property
• Generates significant business activity
• Has inventory
• May have economic nexus
• Files tax returns

Then track the following for each state:

Entity Registration

Record the entity type and registration status.

Tax Accounts

Identify every state tax account associated with the business.

Filing Deadlines

Maintain separate deadlines for franchise taxes, income taxes, annual reports, sales taxes, and payroll taxes.

Payment Obligations

Track minimum taxes and recurring state fees separately from income-based taxes.

Changes in Business Activity

Review state obligations when the company opens a new location, hires employees in another state, expands sales, or acquires property.

WHEN A STATE-BY-STATE REVIEW BECOMES MORE IMPORTANT

A detailed review becomes especially useful when:

• Your company is expanding into another state
• You are choosing where to form a new entity
• You are registering a foreign LLC or corporation
• Your business has locations in multiple states
• You are converting from an LLC to a corporation
• Revenue has grown significantly
• You are acquiring another business
• You are closing or moving a business
• You have received a state tax notice

These changes can affect more than one state tax obligation at the same time.

FINAL THOUGHTS

There is no single number that accurately represents the cost of doing business in every U.S. state.

State franchise tax rates are only one part of the equation.

Entrepreneurs also need to consider annual corporate report fees, minimum taxes, corporate income taxes, gross receipts taxes, foreign qualification requirements, and local business obligations.

A meaningful business franchise tax comparison should therefore focus on the total recurring compliance picture rather than one advertised rate.

Because state rules can change and entity-specific rules can produce different results, businesses should verify current requirements with the applicable state tax and business filing agencies before making a formation or expansion decision. The IRS provides a directory of state government resources that can be used to locate each state's current business and tax information.

If you operate in multiple states or are deciding where to establish your business, a professional review can help organize the tax and compliance requirements before they become a problem.

CBA Financials can help you review your business tax obligations, state filings, and ongoing compliance requirements.

Schedule a business tax consultation with CBA Financials to discuss your situation.

This article is for general educational purposes and is not tax or legal advice. State requirements vary by entity type, business activity, and tax year. Confirm current requirements with the applicable state agencies or a qualified tax professional.