What States Have a Franchise Tax and Who Pays It?

Roughly 20 states impose a franchise tax, though the name, rate, and calculation method differ sharply from one jurisdiction to the next. The states with a franchise tax include Alabama, Arkansas, California, Connecticut, Delaware, Georgia, Illinois, New York, North Carolina, Tennessee, and Texas, along with several others that maintain franchise-style taxes under different labels. Unlike a corporate income tax, a franchise tax is a fee for the legal privilege of existing or operating in a state, typically calculated on net worth, capital, or revenue rather than profit.

States That Currently Charge a Franchise Tax

The label a state uses can be misleading, so the underlying structure matters more than the name. The following states impose a franchise tax or a closely related business privilege tax.

Alabama. Business Privilege Tax based on net worth apportioned to the state. Rates run from $0.25 to $1.75 per $1,000 of net worth depending on taxable income. The maximum is $15,000 for most businesses and $3,000,000 for financial institutions and insurance companies.¹
Arkansas. Franchise tax on corporations. Minimums are $150 for corporations with stock and $300 for those without.
California. Every corporation incorporated, registered, or doing business in the state pays a minimum franchise tax of $800.²
Connecticut. Capital base tax as part of the Corporation Business Tax. Corporations pay the higher of the net income base tax or the capital base tax, though the capital base component is being phased down and reached 0.21% for income year 2025.³
Delaware. Franchise tax on all domestic corporations, with a minimum of $175 under the Authorized Shares Method or $400 under the Assumed Par Value Capital Method. The maximum is $200,000 for most corporations and $250,000 for Large Corporate Filers. LLCs and limited partnerships pay a flat $300 annual tax.⁴
Georgia. Net-worth tax on corporations with a minimum of $125.
Illinois. Franchise tax on paid-in capital, currently being eliminated. For 2025 and 2026, the first $10,000 in liability is exempt. The exemption jumps to $100,000 for 2027, and the tax disappears in 2028.⁵
New York. Corporations pay the highest of three calculations: a business income base, a capital base, or a fixed dollar minimum. The capital base tax rate is 0.1875%, capped at $5,000,000. The fixed dollar minimum ranges from $25 to $200,000 depending on New York receipts.⁶
North Carolina. Annual franchise tax on both domestic and foreign corporations, based on the greater of the corporation’s net worth or its investment in tangible property in the state.⁷
Tennessee. Franchise tax at 0.25% of net worth. A 2024 law eliminated the old property-based measure, so the tax is now calculated exclusively on net worth.⁸
Texas. Called the franchise tax, commonly known as the margin tax. It applies to most business entities and offers four methods for calculating taxable margin: total revenue times 70%, or total revenue minus cost of goods sold, compensation, or a flat $1 million deduction.⁹

Several additional states maintain franchise-style taxes under other names. These include Nebraska, New Jersey, Rhode Island, South Carolina, Vermont, Wisconsin, and Wyoming. In each case the structure focuses on the privilege of operating as a legal entity within the state, not on net income alone.

States Phasing Out or Repealing the Tax

The trend over the past decade has been toward reducing or eliminating franchise taxes, so any list has a short shelf life. Louisiana repealed its corporate franchise tax effective January 1, 2026, meaning businesses filing for the 2026 tax year forward are no longer subject to it. Illinois is in the middle of its scheduled phase-out, with the full tax gone in 2028.⁵ Connecticut has been steadily reducing its capital base rate.³

Tennessee didn’t repeal its franchise tax, but the 2024 change dropped the property-based calculation method. Previously the tax was based on the greater of net worth or the value of real and tangible property in the state. Now only net worth counts, which lowered the effective tax for asset-heavy businesses considerably.⁸

If your business has multistate operations, check each state’s revenue department annually rather than relying on a list that may already be outdated.

Who Actually Owes the Tax

Franchise taxes generally apply to C-corporations, S-corporations, and LLCs, though the specific entity types covered vary by state. Texas casts the widest net, applying its franchise tax to virtually every entity type that conducts business in the state, including partnerships and professional associations. Delaware charges its corporate franchise tax only to corporations incorporated there, and its LLCs and LPs pay a separate flat annual tax instead.⁴

The concept that determines whether you owe is nexus: a sufficient connection between your business and the state. Traditionally that meant a physical presence, such as an office, employees, or inventory. Many states have expanded this to include economic nexus, where exceeding a revenue, property, or payroll threshold triggers the tax without a physical footprint. California treats an entity as “doing business” in the state if its California sales, property, or payroll exceed dollar thresholds that are adjusted annually.¹⁰

Foreign entities, meaning businesses formed in one state but registered to operate in another, are subject to franchise tax wherever they have nexus. A Delaware-incorporated company that conducts significant business in Texas and California could owe franchise taxes in all three states. This is where multistate obligations catch owners off guard.

Sole proprietors and general partnerships are typically not subject to franchise taxes because they are not separate legal entities created by state filing. The tax targets the legal privilege of having a state-recognized entity structure, which sole proprietors don’t have.

Exemptions and Small-Business Thresholds

Not every business in a franchise-tax state actually owes the tax. Exemptions fall into a few categories.

Small-business revenue thresholds. Texas exempts any entity with annualized total revenue of $2.47 million or less. Illinois exempts the first $10,000 in franchise tax liability for 2025 and 2026.¹¹⁵
Nonprofits and tax-exempt organizations. Most states exempt entities with 501(c)(3) status or equivalent state-level exempt status, though the entity may still need to file a return showing $0 owed.
Specific entity carve-outs. California exempts credit unions and certain nonprofit cooperative associations from its minimum franchise tax. New York exempts S-corporations from the capital base tax.¹²¹³
Alabama minimum tax. For 2025 and onward, Alabama taxpayers who would otherwise owe only the $100 minimum privilege tax have no filing requirement at all.¹⁴

How the Tax Is Calculated

Every franchise-tax state uses its own method, and some give you a choice. The approaches fall into four categories: authorized shares, net worth or capital, revenue-based margin, and flat minimums. Which method your state uses is the difference between paying the minimum and accidentally overpaying by thousands.

Authorized Shares (Delaware)

Delaware lets corporations choose between two formulas. The Authorized Shares Method bases the tax purely on how many shares the corporation’s charter authorizes, with a $175 minimum. The Assumed Par Value Capital Method uses a formula combining total gross assets with the number of shares actually issued, with a $400 minimum. A company can pick whichever produces the lower tax, but it has to actively calculate both and submit the required data. If a filer doesn’t submit the asset and issued-share data for the Assumed Par Value method, Delaware defaults to the Authorized Shares calculation.¹⁵

Revenue-Based Margin (Texas)

Texas takes a revenue-based approach. The franchise tax is calculated on “taxable margin,” a modified version of the company’s revenue. Entities pick the calculation that produces the lowest margin from four options and pay tax on that figure. Entities with revenue at or below $2.47 million owe nothing.¹¹

Net Worth and Capital

Alabama, North Carolina, Georgia, Tennessee, and New York’s capital base component all key off net worth or capital. Alabama’s Business Privilege Tax uses a tiered rate from $0.25 to $1.75 per $1,000 of net worth, depending on the entity’s taxable income.¹ New York’s capital base uses a flat 0.1875% rate, capped at $5,000,000.⁶

Gathering the numbers means pulling total equity, asset values, and apportionment data from your financial statements. Apportionment matters for multistate businesses: you’re generally taxed only on the portion of net worth attributable to the taxing state, not your total worldwide net worth.

Filing Deadlines

Deadlines vary by state, and missing them is one of the most common compliance failures for small businesses.

Delaware. Domestic corporation annual reports and franchise taxes are due by March 1. Foreign corporations file by June 30.⁴
Texas. Franchise tax reports are due May 15.
California. The minimum franchise tax is due April 15 for calendar-year filers.
Alabama. Corporations file by April 15; LLCs file by March 15.
North Carolina. Filed with the corporate income tax return, typically April 15 for calendar-year C-corporations.

Most states now require electronic filing. New York mandates e-filing for most general business corporation franchise tax returns and extension requests.¹⁶ Filing happens through the state’s Secretary of State or Department of Revenue portal, depending on whether the franchise tax is bundled with the annual report or filed as a separate tax return.

Penalties for Late Filing or Nonpayment

The consequences of ignoring franchise tax obligations escalate quickly. Delaware charges a $200 penalty plus 1.5% interest per month on any unpaid tax and penalty balance.⁴ Other states impose percentage-based penalties from 0.5% to 5% of the unpaid balance per month, often capped at 25% of the total owed.

The real danger is administrative dissolution. When a business fails to file or pay for a sustained period, most states will revoke or dissolve the entity. The company loses its legal existence and, with it, the limited liability protection that shielded the owners’ personal assets. Creditors, lawsuits, and contracts don’t pause while you sort out the paperwork.

Reinstatement is possible in most states but comes at a steep price. You’ll typically need to pay all outstanding taxes, accumulated penalties and interest, and a reinstatement fee on top, and the fee rises the longer the entity has been dissolved. The franchise tax itself is usually a small number. The cost of neglecting it is not.

1
Alabama Department of Revenue. Business Privilege Tax
2
Franchise Tax Board. Corporations
3
Connecticut Department of Revenue Services. Corporation Business Tax Information
4
Delaware Division of Corporations. Annual Report and Tax Instructions
5
Illinois General Assembly. Full Text of HB5526
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New York Department of Taxation and Finance. Definitions for Article 9-A Corporations
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North Carolina General Assembly. North Carolina General Statutes 105-122 – Franchise or Privilege Tax on Domestic and Foreign Corporations
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Tennessee Department of Revenue. Notice 24-05: Franchise Tax Property Measure Repeal
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Texas Comptroller of Public Accounts. Franchise Tax Overview
10
Franchise Tax Board. Doing Business in California
11
Texas Comptroller of Public Accounts. Texas Franchise Tax Report Forms for 2025
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California Legislative Information. California Revenue and Taxation Code Section 23153
13
Legal Information Institute. NY Comp Codes R and Regs Tit 20 3-1.3 – Capital Base Tax
14
Alabama Department of Revenue. Quick Preparation Reference for TY 2025 Alabama Business Privilege Tax
15
Justia. Delaware Code Title 8 – Chapter 5 – Section 503
16
New York Department of Taxation and Finance. Article 9-A – Franchise Tax on General Business Corporations