LLC Franchise Tax by State 2026 (Who Pays, Who Doesn't)

9 of 51 jurisdictions charge an LLC franchise tax in 2026. California is the highest at $800/year minimum, due whether the LLC has revenue or not. 42 states charge $0. The franchise tax is owed every year regardless of profitability, which is why it dominates 5-year LLC ownership cost in California ($4,070) and Tennessee ($1,500+).

By Aissam Baidi · Last verified 2026-05-15 · 51 jurisdictions

States with LLC franchise tax, ranked highest to lowest

$800

California

$800/yr franchise tax · plus $20/biennial report

$800 minimum annual franchise tax owed year one and every year thereafter. The AB 85 first-year exemption expired for LLCs formed on or after January 1, 2024, every California LLC formed in 2026 owes the $800 in year one. First payment is due by the 15th day of the fourth month after formation; existing LLCs pay by April 15.

Source: www.sos.ca.gov · verified 2026-05-14
$400

Rhode Island

$400/yr franchise tax · plus $50/annual report

All registered for-profit business entities (Corporations, Limited Liability Companies, and Limited Partnerships) are required to pay at least a minimum annual tax of $400 to the RI Division of Taxation. This tax is owed whether or not business is actually conducted or a profit is made. The minimum annual tax is NOT pro-rated and will be owed regardless of how long the business operated in each calendar year.

Source: sos.ri.gov · verified 2026-05-02
$250

Connecticut

$250/yr franchise tax · plus $80/annual report

Connecticut does not have a traditional franchise tax. However, LLCs classified as partnerships or disregarded single-member LLCs are subject to an annual Business Entity Tax of $250 if they are required to file an annual report. LLCs electing corporate tax status are subject to the Corporation Business Tax, which has a $250 minimum.

Source: business.ct.gov · verified 2026-05-14
$250

Vermont

$250/yr franchise tax · plus $45/annual report

All Vermont LLCs are subject to a Business Entity Tax (BET) with a minimum annual payment of $250 to the Vermont Department of Taxes. The tax rate is based on the LLC's income, with a minimum of $250.

Source: sos.vermont.gov · verified 2026-05-02
$175

Kentucky

$175/yr franchise tax · plus $15/annual report

Kentucky imposes a Limited Liability Entity Tax (LLET) on entities with limited liability protection, including LLCs. The minimum annual tax is $175. The tax is calculated based on the lesser of 0.095% of Kentucky gross receipts or 0.75% of Kentucky gross profits, with the $175 minimum applying even if the calculated tax is lower. Sole proprietorships and general partnerships are exempt.

Source: sos.ky.gov · verified 2026-05-15
$150

Arkansas

$150/yr franchise tax · plus $150/annual report

All Arkansas LLCs are required to file an Annual Franchise Tax Report and pay a flat-rate tax of $150. This is a privilege tax due regardless of income or business activity.

Source: www.sos.arkansas.gov · verified 2026-05-14
$150

New Jersey

$150/yr franchise tax · plus $75/annual report

New Jersey imposes a minimum annual LLC fee, which is $150 for most LLCs. This fee can go up to $250 for LLCs with $250,000 or more in New Jersey gross receipts. LLCs electing S-corporation status may have a minimum tax of $375.

Source: www.nj.gov · verified 2026-04-28
$100

Tennessee

$100/yr franchise tax · plus $300/annual report

Tennessee imposes both a franchise tax and an excise tax. The franchise tax is 0.25% of the greater of net worth or the book value of real and tangible personal property owned or used in Tennessee, with a minimum tax of $100. The excise tax is 6.5% of net earnings. These taxes apply to LLCs registered or doing business in Tennessee.

Source: sos.tn.gov · verified 2026-05-02
$50

Alabama

$50/yr franchise tax · plus $50/annual report

Alabama does not have a franchise tax but levies a Business Privilege Tax. This tax is calculated based on the LLC's net worth, with rates ranging from $0.25 to $1.75 per $1,000 of net worth, and a maximum of $15,000. The minimum tax due is $50, and it is filed annually with the Alabama Department of Revenue.

Source: www.sos.alabama.gov · verified 2026-04-28

The 42 no-franchise-tax states (the smart-move list)

For full detail and ranking by 5-year cost, see the dedicated no franchise tax states 2026 listicle. Short version: most of the country charges $0 entity-level tax. The states that charge franchise tax are the outliers, not the norm.

What franchise tax actually is (and isn't)

Franchise tax, also called "privilege tax", "annual tax", "minimum tax", or "franchise excise tax" depending on the state, is a state-level tax on the privilege of existing as an LLC. It applies regardless of revenue, profit, employees, or operations. A California LLC with $0 revenue still owes $800 in year one. A Tennessee LLC with no employees still owes $300 + 0.25% of net worth.

It is not the same as state income tax. State income tax is owed on the LLC's profit; in 41 states this flows through to the members' personal returns. Franchise tax is owed at the entity level, even if the entity has no profit. Some states levy both (California: $800 franchise tax AND state income tax on members). Most levy one or the other. Nine states levy neither income tax nor LLC franchise tax, those are the cheapest places to operate an LLC long-term.

Why this list dominates 5-year LLC cost

Filing fees are paid once. Annual reports are usually $50-$200. Franchise taxes compound, every year, for the life of the LLC. California's $800/yr × 5 years = $4,000 over the LLC's first five years, on top of the $70 filing fee and $20 biennial Statement of Information. That math is why California consistently ranks as the most expensive state for LLC ownership despite having a modest filing fee.

Operationally, this means the franchise-tax line item is the single most important number to check when picking a formation state, assuming you actually have the flexibility to pick (most operators don't; you form where you operate).

Frequently asked questions

How many US states charge an LLC franchise tax in 2026?

9 states levy a franchise (or "privilege" / "minimum" / "annual") tax on LLCs in 2026. The other 42 states charge $0 entity-level tax. California's $800/yr minimum is the highest; Alabama's $50/yr Business Privilege Tax is the lowest non-zero rate.

What's the difference between franchise tax and income tax?

Franchise tax is owed by the LLC for the privilege of existing as an LLC, regardless of revenue. Income tax is owed by the LLC's members on the LLC's profit (or by the LLC itself if it elected corporate tax treatment). California LLCs owe $800 franchise tax even with $0 revenue. Texas LLCs owe margin tax only above $1.23M revenue.

Can I avoid franchise tax by forming in a no-tax state?

Only legally if you have no business operations in your home state. California's Franchise Tax Board treats your out-of-state LLC as "doing business in California" under R&TC § 23101 if you have CA employees, an office, or earn >25% of revenue from CA customers, and charges the $800 anyway. The strategy works only for non-resident or fully-remote founders with no in-state nexus elsewhere.

Does California's $800 franchise tax apply in year one?

Yes, as of 2024+. The AB 85 first-year exemption that waived the $800 in 2021-2023 expired January 1, 2024. Every California LLC formed in 2026 owes the $800 in year one. Most California pricing pages on competitor sites still don't prominently disclose this.

Texas has a "margin tax", is that the same?

Functionally similar but mechanically different. Texas charges 0.375% (retail/wholesale) or 0.75% (everything else) of "taxable margin", but only above the $1.23M annualized revenue threshold (2024-2025; 2026 figure may inflation-adjust). Below that, you file a No Tax Due Information Report (Form 05-163) and owe $0. Most small Texas LLCs effectively have no franchise tax.

Are franchise taxes deductible on my federal return?

Yes. Per IRS Publication 535, state-level franchise / privilege / annual taxes are deductible as ordinary and necessary business expenses on Schedule C (single-member LLC) or Form 1065 (multi-member). Save the receipt and the state tax-authority confirmation.

Continue researching

For an interactive calculator that combines all of these costs (filing fee + report fee + franchise tax + optional registered agent + S-corp election), use the main LLC cost calculator.