LLC Franchise Tax by State: A Complete Guide for Small Business Owners (2025)

If you own or plan to form a Limited Liability Company (LLC), you’ve probably heard about franchise tax. Unlike federal income tax, franchise tax is a state-level fee imposed on businesses for the privilege of existing or operating in that state. The rules, costs, and deadlines vary dramatically from state to state. For small business owners, understanding LLC franchise tax by state is critical to avoid penalties and optimize your legal structure.

In this guide, we’ll break down franchise tax across key states, explain how it’s calculated, provide cost and time estimates, and answer common questions. Plus, we’ll recommend tools to help you stay compliant. Let’s dive in.

What Is LLC Franchise Tax?

Franchise tax is not a tax on your profits. Instead, it’s a fee for the right to do business in a state. Some states call it a “privilege tax,” “annual report fee,” or “license tax.” It applies to LLCs, corporations, and other entities. In some states, like Delaware, even if you don’t operate there, you pay franchise tax if your LLC is registered there.

Key point: Franchise tax is separate from state income tax. You may owe both.

How Is LLC Franchise Tax Calculated?

Methods vary by state:

• Flat fee: A fixed amount (e.g., $800 in California).
• Based on authorized shares: Common for corporations, but some states apply to LLCs (e.g., Delaware uses a complex formula).
• Based on gross receipts or revenue: A percentage of your revenue (e.g., Texas).
• Based on net worth or capital: Less common for LLCs.
• Tiered structure: Fees increase as revenue or size increases (e.g., Ohio).

LLC Franchise Tax by State: Key Comparisons

Below are the most important states for small business owners. Note: Fees are for 2025 and subject to change. Always verify with your state’s Secretary of State or tax authority.

1. California

Franchise tax: $800 minimum annual franchise tax for all LLCs, plus a fee based on total income if over $250,000. The fee ranges from $900 to $11,790.
Deadline: 15th day of the 4th month after the end of your tax year (e.g., April 15 for calendar year).
Time to file: 15 minutes online.
Penalty: 5% of unpaid tax plus interest.

2. Texas

Franchise tax: Based on gross receipts. No tax if revenue is below $2.47 million (2025 threshold). Above that, the rate is 0.375% for retail/wholesale or 0.75% for other businesses.
Deadline: May 15 (annual report).
Time to file: 30 minutes.
Penalty: 5% penalty if late, plus interest.

3. New York

Franchise tax: For LLCs, a flat fee based on New York source gross income. Minimum $25, maximum $4,500.
Deadline: Within 2.5 months after the end of your tax year.
Time to file: 20 minutes.
Penalty: 5% per month up to 25%.

4. Delaware

Franchise tax: $300 annual franchise tax for LLCs (due June 1). No annual report required.
Deadline: June 1.
Time to file: 5 minutes.
Penalty: $200 penalty plus 1.5% monthly interest.

5. Florida

Franchise tax: No franchise tax for LLCs. However, an annual report fee of $138.75 is due by May 1.
Deadline: May 1.
Time to file: 10 minutes.
Penalty: $400 late fee.

6. Ohio

Franchise tax: Based on gross receipts. For LLCs, if gross receipts are under $1 million, no tax. Above $1 million, a tiered rate starting at 0.26% up to 0.26% for most.
Deadline: May 15.
Time to file: 25 minutes.
Penalty: 5% penalty plus interest.

7. Illinois

Franchise tax: For LLCs, a flat $75 annual report fee plus a franchise tax based on paid-in capital. Minimum $25.
Deadline: Before the first day of the anniversary month of formation.
Time to file: 15 minutes.
Penalty: $100 late fee plus 2% monthly interest.

8. Wyoming

Franchise tax: No franchise tax. Annual report fee is $60 or 0.0002 of assets located in Wyoming, whichever is greater.
Deadline: First day of the anniversary month.
Time to file: 10 minutes.
Penalty: $50 late fee.

9. Nevada

Franchise tax: $200 annual franchise tax for LLCs, plus $150 annual list fee.
Deadline: Last day of the anniversary month.
Time to file: 15 minutes.
Penalty: $100 late fee plus 10% penalty.

10. Washington

Franchise tax: No franchise tax, but a Business & Occupation (B&O) tax based on gross receipts. Rates vary by industry (0.138% to 1.5%).
Deadline: Quarterly or annually.
Time to file: 30 minutes.
Penalty: 5% penalty plus interest.

Note: States like Alaska, Montana, and South Dakota have no franchise tax or annual report fees for LLCs.

How to Calculate and Pay Your LLC Franchise Tax: Step-by-Step

1. Determine your state’s method. Check your state’s tax authority website. For example, Texas uses gross receipts, while California uses a flat fee.
2. Gather financial data. You’ll need revenue, gross receipts, or paid-in capital depending on the state.
3. Calculate the tax. Use state-provided worksheets or online calculators. For Texas, multiply gross receipts by 0.375% or 0.75%.
4. File the required form. This may be an annual report, franchise tax return, or both. Most states allow online filing.
5. Pay by the deadline. Set calendar reminders. Late payments trigger penalties and interest.
6. Keep records. Retain copies for at least 3-7 years.

Time commitment: 10-60 minutes per year, depending on complexity. Cost: $0 to $11,790+ annually.

Penalties for Non-Compliance

Failure to pay franchise tax can lead to:

• Monetary penalties (5-25% of unpaid tax).
• Interest accrual (1-2% per month).
• Administrative dissolution of your LLC.
• Loss of liability protection.
• Inability to obtain a certificate of good standing.

Tips to Minimize LLC Franchise Tax

• Choose a low-tax state. Wyoming, Florida, and Nevada have no franchise tax (though other fees apply).
• Consider a different entity type. In some states, S-corporations may have lower franchise taxes.
• Keep revenue below thresholds. Texas and Ohio exempt small businesses.
• Hire a professional. A CPA or registered agent can help you navigate multi-state filings.

For do-it-yourself business owners, we recommend using LLC Formation Kit for Small Business to streamline your paperwork. It includes state-specific checklists and deadline trackers.

Frequently Asked Questions (FAQ)

Q1: Do all states charge LLC franchise tax?

No. States like Wyoming, Florida, Nevada, and Washington do not impose a traditional franchise tax. However, they may charge annual report fees or gross receipts taxes.

Q2: Is franchise tax the same as income tax?

No. Franchise tax is a fee for the privilege of doing business, while income tax is on profits. You may owe both.

Q3: What happens if I don’t pay franchise tax?

Your LLC can be dissolved, you lose liability protection, and you’ll face penalties and interest. In California, the FTB can seize assets.

Q4: How do I know if my LLC owes franchise tax in multiple states?

If you have nexus (physical presence or economic nexus) in a state, you likely owe franchise tax there. Consult a tax professional.

Q5: Can I avoid franchise tax by forming an LLC in Delaware?

No. Delaware charges $300 annually for LLCs. If you operate in another state, you may also owe tax there.

Q6: What is the cheapest state to form an LLC?

Wyoming and South Dakota have low fees and no franchise tax. However, you must register as a foreign LLC where you operate.

Q7: How often is franchise tax due?

Annually, but some states require quarterly or biennial filings. Check your state’s schedule.

Q8: Are there any deductions or credits for franchise tax?

Some states offer credits for small businesses, research & development, or job creation. Review your state’s tax code.

Final Thoughts

Understanding LLC franchise tax by state is essential for small business owners. Costs range from $0 to over $11,000 annually, and deadlines vary. By knowing your state’s rules, you can avoid penalties and keep your LLC in good standing. Always consult a tax advisor for personalized advice.

For additional reading, check out The Small Business Owner’s Guide to LLC Taxes.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Fees and rules are subject to change.