Franchise Tax is a term typically used to describe periodic state filings (separate from income tax filings) that use accounting information to determine fees due to a state. Most people are aware of Delaware’s Franchise Tax for Corporations, but at least 14 states have some kind of filing that meets this criteria.

However, the meaning of Franchise Tax varies widely by state and entity type. Most commonly, a Franchise Tax is a tax for the right to do business in a state, regardless of profitability. 

Implementation of Franchise Taxes also varies widely:

For example, California has a Franchise Tax for Corporations which is part of its state income tax filing. On the other hand, LLCs in California pay an “Annual LLC Tax” which is essentially the same thing, only filed separately from income taxes.

Wisconsin has a Franchise Tax filing, but only in name - it is actually a state income tax filing. The state also has an Annual Report that looks like a Franchise Tax filing, but isn’t called one. 

We’ve written detailed guides on each state’s Franchise Tax filings.

How Discern helps with Franchise Taxes

Missing Franchise Tax filings is one of the most common reasons entities fall out of compliance. The due dates are difficult to track, the requirements are ambiguous, the filings themselves are complex, and they sit in the gray area between whoever handles your other state filings and your tax accountant. To make matters worse, Registered Agents typically avoid supporting Franchise Tax filings.

Although we recommend that you have your Tax Accountant assist in preparing and filing any Franchise Tax filings you may need to complete, Discern provides a variety of product features to make sure you never miss a Franchise Tax filing:

1. Discern tracks which Franchise Tax filings you need to complete based on characteristics about your legal entities, and notifies you when they are due.
2. Since some Franchise Tax filings can only be filed on paper (e.g. Franchise Taxes in Illinois), or are typically filed by a tax accountant, Discern provides detailed information on where and how to file them.
3. Some Franchise Tax filings, like Delaware’s Franchise Tax for Corporations, can be accurately calculated and filed directly from Discern’s product.