If you own a business in the U.S., you have probably heard of franchise tax. It is one of the most common questions business owners ask, but it is also widely misunderstood. Despite the name, franchise tax has nothing to do with fast-food franchises or licensing a brand. In fact, it’s one of the simplest taxes you may encounter at the state level.
In short: Franchise tax is a state-level fee you pay for the legal privilege of having your business registered in that state.
It is a way for states to keep track of businesses operating within their borders and ensure that companies are legally compliant. Many people get confused because the tax is often called by different names depending on the state, including Annual Report, State Report, Statement of Information, Annual Filing Fee, or Public Information Report.
Regardless of the name, the purpose is the same: it’s an annual requirement to maintain your business’s active legal status.
This article will explain what franchise tax is, why it matters, the key amounts and due dates for Wyoming and Delaware (the states where most companies we work with are registered), and how to stay compliant.
What is Franchise Tax?
Franchise tax is not based on your business revenue, profits, or income like federal taxes. Instead, it is a flat or calculated fee you pay to keep your business legally registered in a state. Even if your company earns no income in a year, you may still be required to pay it.
Think of it as a permission fee—a cost for the privilege of having your LLC, corporation, or other entity legally exist and operate in a state. It allows the state to maintain updated records of active businesses and ensure that companies comply with local rules.
Because each state sets its own rules, filing requirements, and deadlines, the process and amount owed can differ significantly from one state to another.
Why Franchise Tax Matters
Even though franchise tax is often small and easy to pay, it plays a crucial role in keeping your business in good standing. Here’s why it matters:
- Avoid penalties and interest: Missing your franchise tax deadline can result in penalties and interest, which continue to grow until the tax is paid.
- Maintain good standing: Paying franchise tax confirms your company is active. This status is often required to open business bank accounts, secure financing, or enter contracts.
- Prevent administrative dissolution: Failing to file franchise tax and annual reports can lead to the state dissolving your business. Once dissolved, you lose the legal right to operate, and reinstating the business can be costly and time-consuming.
In short, franchise tax is one of those small obligations that prevent major headaches down the line.
Franchise Tax in Wyoming
Wyoming is known for being business-friendly, and its franchise tax is one of the simplest in the country. Here’s what you need to know:
- Flat fee: $60 per year
- Due date: The first day of the month your company was formed
- Who pays: All LLCs and corporations registered in Wyoming
- More information: Wyoming State Fees
There’s no calculation based on revenue, assets, or shares—Wyoming simply charges a fixed annual fee. This makes compliance straightforward and easy to manage, especially for small businesses or startups.
Because the fee is modest and predictable, Wyoming is a popular choice for companies looking for a low-maintenance state registration. However, businesses still need to make sure they pay on time to avoid penalties.
Franchise Tax in Delaware
Delaware is another very popular state for company registration, particularly for corporations. Unlike Wyoming, Delaware’s franchise tax can vary depending on the type of business and, in some cases, the size of the company.
Here’s a breakdown:
- Corporations: $400, due March 1st
- LLCs: $300, due June 1st
- Additional information: Delaware Franchise Tax
For corporations, Delaware also requires information about assets (like cash balances in your bank account) and share information to calculate the tax. The exact method depends on the corporation type and authorized shares.
Because Delaware charges higher franchise taxes than Wyoming, some companies choose Wyoming if they want the lowest possible annual fee. However, Delaware is often preferred for corporations seeking investors, due to its well-established corporate law framework.
Franchise Tax in Other States
While Wyoming and Delaware are the most common states for company registration, it’s worth noting that other states like Florida and Texas also have franchise taxes or similar annual fees.
- Florida: Charges an annual report fee for corporations and LLCs
- Texas: Has a Margin Tax, calculated based on revenue or other factors
The key takeaway is that every state has its own rules, and you need to check your specific state’s Department of Revenue or Secretary of State website to confirm deadlines and requirements.
Who Handles Franchise Tax?
In most cases, your Registered Agent or the company that helped you form your business handles franchise tax filings. A registered agent is a party that represents your company for the state where it was formed.
Common examples of registered agents include Firstbase, Doola, Jumpstart, and other formation companies. If a client asks about franchise tax, the easiest solution is to:
- Explain what franchise tax is: a state-level fee to maintain legal registration.
- Refer them back to their Registered Agent or formation company, which is usually responsible for these filings.
- Provide the official portals for reference:
At Bookmate, we focus on federal taxes and do not handle franchise tax filings. However, we can guide clients on where to go and what to expect for these state-level fees.
Final Thoughts
Franchise tax isn’t about profits, it’s about maintaining your business’s legal presence. Understanding it helps you stay compliant, avoid costly penalties, and protect your company’s status.
Each state has its own rules, but the principle is the same everywhere: as long as your business exists, it has responsibilities. With organization and proactive planning, franchise tax can be just another straightforward step in your annual compliance routine.
Bookmate is here to help you manage federal taxes and bookkeeping, while your Registered Agent ensures your state-level obligations, like franchise taxes, are always handled properly, whether your business is in Texas, Delaware, Wyoming, or beyond.
Learn more at Bookmate or book a free consultation call to get personalized guidance for your business!
