Franchise Tax: What It Is and Which States Charge It

What Is Franchise Tax?

Franchise tax (sometimes called gross receipts tax, margin tax, or commercial activity tax) is a tax on the privilege of doing business in a state. Unlike income tax, it is often based on revenue, not profit.

States With Franchise Tax

Texas: 0.375-0.75% on gross margin above $1.23M
California: $800 minimum, regardless of income
Delaware: Based on authorized shares or assumed par value
Tennessee: $300 minimum plus 0.25% of net worth
Washington: B&O tax of 0.471-3.3% on gross receipts
Ohio: Commercial activity tax of 0.26% above $1M

Why It Matters

Franchise tax can be a hidden cost, especially in states marketed as "no income tax" states. Always factor it into your total tax burden calculation.