Posted by Sy Tax Solutions

Franchise Reporting

Franchise Reporting

Many US states have commercial income taxes in various forms. Some states apply corporate taxes, while others tax most types of businesses. States call these taxes different name and meanings are confused. California, for example, calls its tax "franchise tax" and Texas uses gross revenue as a way to tax its franchise.

Individual companies are generally not subject to franchise fees and other forms of state income tax, in part because such companies are not formally registered in the state in which they operate.

What Is A Franchise Report?

A franchise fee is a government tax (tax) levied by some states in the United States For some business organizations, such as companies and partnerships with a link in the state. A franchise tax is not based on income. Instead, the typical calculation of the franchise tax is based on the net value or capital held by the entity.

A franchise fee is imposed by a state for companies, partnerships, and LLC for the privilege of incorporating or exerting out business in that state. Franchise taxes, such as income taxes, are generally imposed each year. Failure to pay franchise fees can result in the disqualification of a business from carrying out business in a state.

Franchise taxes are impounded on companies that do business in a state; This is the concept of link or position. Determining the connection is complicated, even if the company is sold in the state, has a physical structure in the state or has employees in that state.

A company can do business in different states (depending on how the state sees the company) and usually the company is formally registered in the state or different states. If your company is registered officially in several states, you may have to pay franchise fees in different states if you do business in these states.

Purpose Of Franchise Tax

The purpose of the franchise tax is to increase revenues; In most cases, franchise tax revenues are substantial. For example, the state of California charges more than $ 12 billion a year in franchise fees for its general fund.

What Is Not A Franchise Tax?

A franchise fee is not a tax on deductibles. That is, it is not a way to collect taxes on all McDonald's franchises in a state.

Why May Franchise Fees Not Be Good For Businesses?

You will notice that in the definition I used the word "privilege." A franchise fee is what is termed a "privilege" tax, which means that it is impounded on a business entity for the privilege of doing business in the state. Some states (like Louisiana) have income taxes and franchise fees. This makes the tax rate in these states wider and has the effect of increasing the affairs of the state.

Reports states that franchise fees will be phased out in some states (such as West Virginia) to stimulate business growth.

Which States Have Franchise Fees?

The states that currently have franchise rates are Alabama, Arkansas, Delaware, Georgia, Illinois, Louisiana, Mississippi, Missouri, New York, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, and West Virginia.

How Do States Determine Their Franchise Fees?

Each state has different criteria to determine what kind of business entities should pay franchise fees, the tax base (income or capital) and the tax rate.

States base franchise taxes on several criteria:

  • Income (therefore, the franchise tax is an income tax)
  • A nominal value of shares or value of share capital
  • Paid-in capital
  • Net assets
  • Evaluate the value of real and tangible personal property or of the net investment in tangible personal assets
  • Gross income (this tax is a tax on gross income)
  • The state of Illinois has a table showing states that have franchise fees (as of 2014) and how these taxes are determined.

How Can I Pay Franchise Fees In My State?

Most companies (except individual companies) must register in the state in which they do business. So, if you are starting a company, a partnership or an LLC, register by filling out a form for that specific type of company. Your state will contact you after registering your business.

You can also check with your state's retaliation department to determine if your state has a franchise tax or another company tax.

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