A franchise tax is a state tax on businesses and other entities (corporations, limited liability companies, trusts, etc.) that are formed in or doing business in a state.
A franchise tax is said to be a tax on the privilege of doing business in a state and is sometimes referred to as a privilege tax. The amount of tax due is often calculated as a percentage of a business’s income, for example.
In California, the franchise tax is administered by the California Franchise Tax Board (FTB) and applies to corporations, limited liability companies (LLCs), and other business entities that are either formed in California or doing business in the state. The tax is essentially for the privilege of doing business in California. For corporations, the franchise tax is the higher of a minimum tax or a tax on net income at a specific rate, which is currently 8.84% for C corporations and 1.5% for S corporations. LLCs, on the other hand, are subject to an annual minimum franchise tax along with an additional fee based on their total annual income. The minimum franchise tax for LLCs is currently set at $800. It's important for businesses to determine their specific tax obligations as the calculations can vary based on the entity type and the amount of income generated within the state.
