Franchise Tax and State Annual Report in the USA
There are good chances that you may not be acquainted with the concept of Franchise Tax. Apparently because it doesn’t exist in your state/state you are planning to set up your business in. So, please allow me the privilege to walk you through it. To give a heads-up, it’s all about privilege only(no pun intended😜).
Franchise tax is levied by some US states on businesses for availing them the privilege of incorporating and operating in their jurisdiction. Interesting, right? What’s more interesting is that it is not levied on income but on the net worth or gross assets of the business (all criteria explained further).
Who Needs to Pay Franchise Tax
All forms of organisations including corporations, partnership, LLP, LP, and LLC (except sole proprietorship as they are not officially registered with the state) need to pay the Franchise Tax. Failure to pay the same can bar the business from operating in that State.
Ascertaining Nexus with State for Franchise Tax
As mentioned at outset, franchise tax is levied on businesses operating in that jurisdiction. Thus, there needs to exist a nexus between the business and the State for that business to be subject to that State’s Franchise tax. Similar to Sales tax, this nexus is hard to determine.
It is impossible to give a thumb rule for ascertaining nexus as guidelines vary from state to state and business to business and thus seeking professional advice is the bulletproof way to avoid any tax dispute in future. You might not have any customer, any inventory or any physical location in that state, but you might still be subject to its franchise tax because your employees reside there.
Criteria for Franchise Tax
Again, it is different in different states. But to give you a rough outline, its criteria of franchise tax can be gross assets, net worth of the business, par value of stock, value of capital stock, tangible assets, paid-in capital, taxable capital, gross receipts. There are a lot of intricacies to it and thus it is better to seek tailor-made solutions from professionals than going by the generic info available on some blog.
US States Imposing Franchise Tax
Following are the states presently levying privilege tax:
- New York
- North Carolina
- Texas and
- West Virginia.
Filing of Annual Reports
Annual Report (AR) are filed with the Secretary of State. The purpose of states to ask for an AR is to keep the state, public, investors apprised of the information regarding your business which is dynamic and for the state to ensure a stable revenue stream by these ARs.
Failure to File Annual Reports
The possible consequences of failing to publish an AR can be:
- Limiting the sources of finance of business (as they won’t be able to produce the good standing certificate at funding sources);
- Losing in a bid in a state tender;
- disqualification and maybe even dissolution.
All organisations, LLP, LLC, LP and even non-profits. Please take note that it is easy to miss the filing date of ARs and thus it is advised to hire professionals to take care of it and save you all the hassle of paperwork and provide you with an error free AR and more time in your hands to grow your business. Also, even if your nexus with a particular state is severed, you might still need to file.
Just like Franchise tax, filing and the cost of filing of ARs also varies from state to state. For instance, in Arizona, it is not mandatory to publish ARs, while in states like Idaho, it needs to be filed annually.
Information to be Furnished in Annual Reports
Though vary from state to state and business type to type, annual reports asks for following information regarding business:
- Company’s legal name
- Address of primary office in that state (if any)
- Address of primary office wherever located in US
- Name of the registered agent
- Address of registered office
- Names and business addresses of Directors and officers(for a corporation)/ managers and members (LLC)/ partners (LLP and LP)
Besides the fact that we have a lavish 10+ years of experience in this arena of providing premium tax consultancy service to thousands of organisations and High Net Worth Individuals (HNWI), we have top-notch names like Paperboat Apps, VSV Wins Group, Numiv Research, and many more. We offer an amazing value-for-money proposition to our clients on the retainership agreement availing them an umbrella solution to all their business requirements. For further queries, you can reach out to us on the mentioned contact details.
Your professional help is just one call away. To know more about how we will implement our optimum and innovative solutions in your organization give us a call on 7727887799 (also available on WhatsApp) or drop us an email containing your business requirements at firstname.lastname@example.org and our team will reach out to you within 2 hours.
We file your franchise tax and annual reports, along with providing a range of other services to take full accountability as the virtual CFO to your business.
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