The confusion matters because the amount owed, the filing requirement, and even whether a tax applies at all can shift dramatically depending on your LLC's tax classification, revenue, net worth, capital structure, and business activity. A flat $800 charge in one state might become a margin-based calculation in another.
This guide walks through the 2026 state landscape: how franchise tax is calculated, which states use flat fees versus income-based formulas, deadlines you shouldn't miss, fees that commonly get confused with franchise tax, and what cross-border owners (particularly Australians running US LLCs remotely) need to watch for.
Key Takeaways
- Franchise tax is separate from federal income tax, state income tax, and most annual report fees
- Calculation methods vary by state: flat fees, minimum taxes, net income, gross receipts, net worth, or capital stock
- An LLC can owe a filing obligation even with little or no profit
- Forming in a low-cost state like Wyoming doesn't remove tax duties where your LLC actually operates
How Does LLC Franchise Tax Work?
A franchise tax is a state-imposed charge for the privilege of being organised or authorised to do business within that jurisdiction. The name is misleading.
Texas's Comptroller describes it plainly as "a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas." It has nothing to do with franchising a brand.
It's also easy to mix up with other state charges. Franchise tax is distinct from:
- Federal income tax (paid to the IRS)
- State income tax (paid on profit, separate from entity-level charges)
- Sales and use tax, payroll tax, and property tax
- Annual report or registered-agent fees, which usually update state records rather than tax anything
Federal Classification Doesn't Always Follow Through
How your LLC is taxed federally doesn't automatically determine your state obligation. In practice:
- Single-member LLCs are disregarded for federal purposes unless they elect corporate treatment
- Multi-member LLCs default to partnership treatment unless another election is made
- LLCs electing S corp or C corp status can trigger entity-level state tax rules that wouldn't otherwise apply
California is the clearest counterexample to "disregarded means exempt." A single-member LLC still files Form 568 and owes the annual LLC tax, federal disregard or not.
Common Ways States Calculate the Charge
Expect to see one or more of these bases:
- Flat annual fees or minimum taxes
- Net income or net worth
- Gross receipts or a margin calculation
- Capital stock or paid-in capital
- Combinations of the above, with a floor and ceiling
Why Nexus Matters for Remote Owners
Nexus is the trigger for registration and tax obligations. It can arise from offices, employees, inventory, property, contractors, or a revenue threshold tied to customers in a state.
For an Australian owner running a US LLC remotely, both the formation state and every state where the business actually operates can matter. Forming in Delaware doesn't exempt you from registering in Texas if that's where your customers and activity actually sit.
LLC Franchise Tax by State in 2026
There's no single "LLC franchise tax rate" that applies nationally. Instead, states fall into rough groups based on how they calculate the charge. Treat the figures below as a starting point, and verify current amounts directly with the relevant state authority before filing, since thresholds and rates shift year to year.
Flat LLC Franchise, Privilege, or Licence Charges
Some states apply a fixed or near-fixed annual charge regardless of profit:
| State | Charge (2026) | Basis | Typically due |
|---|---|---|---|
| California | $800 annual LLC tax | Fixed minimum; applies once an LLC forms or registers | 15th day of the 4th month of the tax year |
| Delaware | $400 (confirm current assessment year) | Flat alternative-entity tax; no annual report required | 1 June, for the prior calendar year |
| Arkansas | $150 | Flat LLC franchise tax report | 1 May |
| Wyoming | Greater of $60 or $0.0002 per dollar of in-state assets | Annual report licence tax | Anniversary month of formation |
| Tennessee | $100 minimum | Minimum within a broader net-worth calculation | 15th day of the 4th month after year-end |
California's $800 applies whether or not the LLC turns a profit, and it continues until the entity is formally cancelled with the state, according to California's FTB guidance.
Wyoming's charge is an asset-based annual-report licence tax rather than a traditional franchise tax. Tennessee's $100 is a floor inside a larger net-worth formula, not a flat fee on its own.
Income-, Margin-, Gross-Receipts-, or Net-Worth-Based Systems
Other states skip the flat-fee approach entirely and calculate the charge from financial data:
- Texas: Margin tax; no tax for 2026 if annualised revenue is at or below $2.65 million (report still due). Above that, 0.375% for retail/wholesale and 0.75% for most others (Texas Comptroller).
- Tennessee: 0.25% of Tennessee net worth ($100 minimum) plus 6.5% excise tax on taxable income (TN Department of Revenue). The old $500,000 property exclusion no longer applies.
- Washington: Gross-receipts B&O tax with rates by activity (retail 0.471%, wholesale/manufacturing 0.484%, service tiers up to 2.1%).
- Alabama: Business privilege tax on net worth; rate depends on income. Computed tax of $100 or less is exempt from payment and filing.
- Georgia: Net worth tax for LLCs filing as corporations; $0 below $100,000 net worth, but a return is still required.
States Where Corporate Tax Election Changes the Result
North Carolina shows how your tax election, not just your legal form, decides the outcome. A default pass-through LLC generally isn't subject to North Carolina franchise tax at all.
Elect C corp or S corp treatment, and the entity falls under a franchise tax schedule of roughly $1.50 per $1,000 of the tax base, with minimums and caps that differ by election type. Your LLC's legal structure and its elected tax treatment are two separate questions; conflating them is a common and costly mistake.
States With No General Franchise Tax or With Recent Changes
A handful of states skip general franchise tax altogether, or have recently changed course:
- Nevada states outright that it does not levy a franchise tax
- Louisiana repealed its corporation franchise tax for periods beginning on or after 1 January 2026
- Washington added a 0.5% surcharge on income over $250 million for very large businesses, starting January 2026
None of this removes other obligations. No franchise tax still means annual reports, sales tax, payroll filings, local licences, and member-level income tax can still apply.
Taxes, Fees, and Filing Obligations Often Confused With Franchise Tax
Franchise tax and an annual report fee often get lumped together, but they're not the same thing. Franchise tax may be calculated from income, margin, or net worth. An annual report fee usually just updates your registered agent, address, and officer details with the state, and it can be due even when no franchise tax is owed.
There's also a critical distinction between no tax due and no filing due. Texas is the textbook example: fall below the $2.65 million revenue threshold and you owe nothing, but you still submit a Public Information Report or Ownership Information Report.
Beyond franchise tax itself, your real compliance budget should account for:
- Foreign qualification and registered-agent fees in every state you operate in
- Sales and use tax registration and returns
- Employer withholding, unemployment insurance, and payroll filings
- Local business licences, property taxes, and member-level state returns
State terminology varies wildly. A payment might go to the Secretary of State, a tax department, a comptroller, or another agency entirely, so confirm who you're actually paying before you file.
How to Calculate, File, and Budget for LLC Franchise Tax
Start with a compliance checklist before touching a calculator:
- Confirm federal tax classification - disregarded, partnership, S corp, or C corp
- Map your formation state and every operating state - these create separate obligations
- Document ownership structure and accounting period
- Gather revenue, payroll, and property figures by state
- Pull prior filings to check for outstanding notices or missed reports
For each relevant state, identify the tax base, minimum or threshold, filing form, payment method, due date, and whether an annual report is filed on top of the tax itself. These details change yearly, so last year's instructions aren't a safe template for 2026.
Build your annual budget by combining:
- Entity-level franchise or privilege tax
- Annual report fees
- Foreign registration costs in operating states
- Registered-agent charges
- Accounting and bookkeeping support
- Possible member-level tax obligations
For Australian founders and other overseas owners, this gets more complex. Work through:
- Whether your LLC's US activity creates nexus beyond the formation state
- Whether owners need nonresident or information returns
- How US obligations line up with your Australian tax position
A Delaware or Wyoming LLC with low formation fees is not automatically your cheapest option if customers, staff, or operations sit in California or Texas. You will likely need to register and file there regardless of where you incorporated.
VJM Global's US tax and accounting team works with Australian business owners and other foreign investors to map these state-by-state obligations. Support covers multi-state compliance, entity formation, and filings such as Form 1040-NR for nonresident owners, with coordinated recordkeeping across the structures involved.
Before filing anywhere, review:
- Current instructions directly from the state agency, not last year's
- Which tax year the form actually applies to
- Your entity's tax classification for that specific state
- Confirmed nexus triggers
- Payment confirmation and copies of everything filed
What Happens When Franchise Tax Obligations Are Missed?
Consequences vary by state, but they tend to escalate quickly:
- Late fees and interest - Texas charges 5% for payments up to 30 days late and 10% beyond that, plus a $50 penalty per late report even when no tax is owed
- Loss of good standing - can block you from obtaining certificates or financing
- Administrative dissolution or suspension - California can suspend a business for nonpayment, after which contracts may become void or unenforceable
- Forfeiture of the right to transact business - including, in some states, the right to sue or defend in court
Closing an LLC informally doesn't stop these obligations from accruing. You need to formally file dissolution or withdrawal paperwork, submit final returns, and clear any outstanding reports in every state where the entity was registered.
Don't rely on reminders from your original formation service or an outdated online table. If you've received a notice or missed a deadline, check directly with the state tax department and Secretary of State.
Conclusion
LLC franchise tax isn't one nationwide tax with a standard rate. It's a patchwork of state-specific obligations. What you owe depends on your entity's classification, where it has nexus, how each state calculates its tax base, your revenue or assets, and that state's rules in 2026.
The safest approach:
- Separate taxes from fees
- Verify every requirement directly with the state agency involved
- Get cross-border and state-tax guidance before you form or expand a US LLC, particularly if you run it from Australia
Frequently Asked Questions
What is considered a franchise tax?
It's a state charge for the privilege of forming, registering, or doing business through an entity in that state. It has nothing to do with owning a commercial franchise, and it's separate from ordinary income tax.
Who needs to file franchise tax?
It depends on the state, your entity type, tax classification, and whether you've created nexus there. Some states require a filing even when no payment is actually due.
What is the minimum franchise tax in California?
California's annual LLC tax is $800 for the 2026 tax year for LLCs doing business in or registered with the state. This is separate from any income-based LLC fee; check Franchise Tax Board guidance for your revenue bracket.
What are the requirements for paying franchise tax in Texas?
For 2026, LLCs with annualised total revenue at or below $2.65 million owe no tax but must still file a Public Information Report. Above that threshold, rates of 0.375% or 0.75% apply by industry; confirm with the Comptroller.
What happens if you don't pay franchise tax in Texas?
Penalties start at 5% for payments up to 30 days late and rise to 10% after that, with interest from day 61 and a $50 late-report penalty. Continued nonpayment can forfeit your right to transact business in Texas.
