2025 LLC Franchise Tax by State: What Small Business Owners Must Know

Starting an LLC is a smart move for asset protection and tax flexibility. But one hidden cost many entrepreneurs overlook is the LLC franchise tax—a state-level fee charged simply for doing business as an LLC. This guide breaks down franchise tax by state, including rates, deadlines, and strategies to minimize costs. Whether you’re forming in Delaware, Texas, or California, understanding these fees upfront can save you hundreds (or thousands) annually.

What Is Franchise Tax for an LLC?

Franchise tax is not a tax on income—it’s a privilege tax for the right to operate as an LLC in certain states. It’s calculated based on your LLC’s assets, net worth, or gross receipts, not profit. Not all states impose a franchise tax, but those that do can charge flat fees or variable amounts depending on your business size.

Step 1: Identify Your State’s Franchise Tax Rules

Before filing your LLC paperwork, check if your target state imposes a franchise tax. Here’s a breakdown by category:

States With No Franchise Tax (2025)

• Alaska
• Arizona
• Colorado
• Florida (no franchise tax for LLCs, but has corporate income tax for C-corps)
• Nevada
• New Mexico
• South Dakota
• Texas (no franchise tax for LLCs with revenue under $1.18M; see below)
• Washington
• Wyoming

Note: Even without franchise tax, you may still pay annual report fees (e.g., $50 in Wyoming, $30 in Colorado).

States With Flat-Fee Franchise Tax

• Delaware: $300 annual franchise tax (flat for LLCs; corporations pay based on shares). Due June 1.
• Illinois: $500 annual franchise tax (plus $250 annual report fee).
• Maryland: $300 annual franchise tax (for LLCs with assets over $1M or gross receipts over $1M).
• Massachusetts: $500 annual franchise tax (for LLCs with gross receipts over $500k).
• New Jersey: $375 annual franchise tax (flat for LLCs with gross receipts under $500k; higher for larger).
• New York: $25 annual franchise tax (plus $50 biennial filing fee).

States With Variable Franchise Tax (Based on Revenue or Net Worth)

• California: $800 annual minimum franchise tax (due April 15). Plus 0.1% on net income over $250k.
• Texas: 0.375% of gross receipts (for LLCs with revenue over $1.18M). No tax below that. Due May 15.
• North Carolina: $200 minimum franchise tax (based on net worth: $1.50 per $1,000 of net worth).
• Tennessee: $300 minimum franchise tax (based on net worth: 0.25% of net worth).
• Alabama: $100 minimum franchise tax (based on net worth: 0.25% of net worth).
• Mississippi: $250 minimum franchise tax (based on net worth: 1.5% of net worth for LLCs).
• Georgia: $100 minimum franchise tax (based on net worth: 0.25% of net worth).

Step 2: Compare LLC Formation Costs + Franchise Tax

When choosing a state to form your LLC, consider both initial filing fees and ongoing franchise taxes. Here’s a 3-year cost comparison for a $100k revenue LLC:

State	Initial Filing Fee	Annual Franchise Tax	3-Year Total
Wyoming	$100	$0	$100 + annual report fees ($50/yr) = $250
Delaware	$90	$300	$990
California	$70	$800	$2,470
Texas	$300	$0 (if revenue under $1.18M)	$300 + annual report ($0) = $300
Nevada	$425	$0	$425 + annual report ($150) = $875
Illinois	$500	$500	$2,000

Key takeaway: If you’re a small business with low revenue, Wyoming or Texas are cheapest. But if you need investor credibility, Delaware might still be worth the $300 annual fee.

Step 3: Understand Payment Deadlines

• California: Due April 15 (same as personal tax). Late penalty: $250 + 10% interest.
• Delaware: Due June 1. Late penalty: $250 + 1.5% per month.
• Texas: Due May 15. Late penalty: 5% of tax due (minimum $50).
• Illinois: Due March 15. Late penalty: 2% per month (max 20%).
• New York: Due March 15 (for calendar-year LLCs). Late penalty: $50 + 10% interest.

Step 4: How to Reduce Your Franchise Tax Liability

1. Choose a no-franchise-tax state for formation if you don’t need a physical presence (e.g., Wyoming for online businesses).
2. Keep assets low in variable-tax states like North Carolina or Tennessee—franchise tax is based on net worth.
3. Structure as an S-Corp (after LLC): In some states like California, S-Corps pay lower franchise tax ($800 minimum vs. LLC’s same $800, but S-Corp can save on self-employment tax).
4. Use multiple LLCs to keep each under revenue thresholds (e.g., Texas’s $1.18M cap).
5. File annual reports on time to avoid late fees (often larger than the tax itself).

Step 5: Tools to Stay Compliant

Managing franchise tax deadlines across multiple states can be a headache. I recommend using ZenBusiness for automated annual report filing and franchise tax reminders. Their $199/year plan includes state compliance monitoring. Alternatively, IncFile offers free LLC formation but charges extra for franchise tax filing support. Both are affiliate links I trust for small business owners.

FAQ: LLC Franchise Tax by State

1. Do all LLCs pay franchise tax?

No. Only about 20 states impose a franchise tax. Most western and southern states (like Nevada, Wyoming, Texas, Florida) have no franchise tax for LLCs.

2. Is franchise tax deductible?

Yes, franchise tax is deductible as a business expense on your federal tax return (Schedule C or Form 1065).

3. What happens if I don’t pay franchise tax?

Your LLC can be dissolved administratively. For example, California charges $800 even if you have zero revenue, and failure to pay leads to penalty accrual and loss of liability protection.

4. Can I avoid franchise tax by forming in a different state?

Only if your LLC has no physical presence in the taxing state. If you operate in California, you must register and pay California’s $800 franchise tax regardless of where you formed. This is called foreign qualification.

5. Which state has the lowest franchise tax for high-revenue LLCs?

Wyoming (no franchise tax), Nevada (no franchise tax), and Texas (only 0.375% on revenue over $1.18M). For revenue over $10M, Delaware’s $300 flat fee is most cost-effective.

6. Does the franchise tax apply to single-member LLCs?

Yes, in states that impose it, single-member LLCs are treated the same as multi-member LLCs. You must pay the franchise tax even if you’re the only owner.

7. How do I calculate franchise tax for a variable-rate state?

For Texas: Multiply your gross receipts by 0.375%. For North Carolina: Multiply net worth by $1.50 per $1,000. Always check the state’s formula—some use a combination of assets and receipts.

Final Thoughts

LLC franchise tax is a recurring cost that can significantly impact your bottom line. By choosing the right state and staying on top of deadlines, you can keep compliance costs under $100/year. For most small businesses, forming in a no-franchise-tax state like Wyoming or Texas (if revenue is under $1.18M) is the cheapest path. But if you need the legal prestige of Delaware or must operate in California, budget for the annual $300 or $800 fee respectively.

Ready to form your LLC? Check out ZenBusiness for a stress-free setup that includes franchise tax compliance. Their starter plan at $0 (plus state fees) covers everything you need.