Summary

Franchise tax is a state-level tax charged for the privilege of doing business in a state, and it applies to many LLCs, corporations, and partnerships. It does not mean you operate a franchise brand, and you may owe franchise tax even if your business makes no profit. Income tax is based on profit, while franchise tax is based on your legal right to operate in a state, and some states charge both.

Key Facts

  • Franchise tax is a state-level tax charged for the privilege of doing business in a state.
  • Franchise tax applies to many LLCs, corporations, and partnerships.
  • Franchise tax does not mean you operate a franchise brand.
  • You may owe franchise tax even if your business makes no profit.
  • Income tax is based on profit, while franchise tax is based on your legal right to operate in a state.
  • Some states charge both franchise tax and income tax, so your business could owe franchise tax even in a year when income tax is zero.

Frequently Asked Questions

What is franchise tax?

Franchise tax is a state-level tax charged for the privilege of doing business in a state. It applies to many LLCs, corporations, and partnerships. It does not mean you operate a franchise brand.

How is franchise tax different from income tax?

Income tax is based on profit. Franchise tax is based on your legal right to operate in a state.

Can you owe franchise tax even if your business makes no profit?

You may owe franchise tax even if your business makes no profit.

Can a business owe both franchise tax and income tax?

Some states charge both. That means your business could owe franchise tax even in a year when income tax is zero.

What is Franchise Tax?

  • Tax

Franchise tax is a state-level tax charged for the privilege of doing business in a state. It applies to many LLCs, corporations, and partnerships. It does not mean you operate a franchise brand.

You may owe franchise tax even if your business makes no profit.

How Is Franchise Tax Different From Income Tax?

Income tax is based on profit.
Franchise tax is based on your legal right to operate in a state.

Some states charge both. That means your business could owe franchise tax even in a year when income tax is zero.