Franchise tax

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Franchise tax is a tax charged by some US states to corporations with a nexus (aka a filing obligation) with those states. The common feature of a state's franchise tax is that it is not based on income. Rather, the typical franchise tax calculation centers on the "net worth" of the taxpayer.

Typically, the number of shares they issue or, in some cases, the amount of their assets is used to make this determination. The purpose of the tax is to raise revenue for the state. The state of Delaware has a significant franchise tax, while other states, such as Nevada, have none at all or a smaller one. On the other hand, states with higher corporate income taxes usually have low franchise taxes and vice versa. Thus in the case of Delaware, it has no corporate income tax for companies that are listed as operating outside the state, however, Delaware's corporate franchise tax is substantially higher than that in other states.

References[edit]

Texas Franchise Tax