Franchise tax
A state tax for the privilege of existing or doing business in the state. It's often owed even when there's no profit.
Some states bill an LLC or corporation just for existing there, or for doing business there. That's a franchise tax. The entity pays it, not you, and in many states a year with no profit still gets a bill.
How it's measured depends on the state. Four examples:
- California: every LLC owes an $800 annual tax, and an LLC fee is added once total California income hits $250,000.
- Texas taxes margin at 0.75%. For 2026 and 2027 reports, though, a business with $2.65 million of revenue or less owes nothing and still files the Public Information Report.
- Delaware takes a flat $400 from each LLC starting with tax year 2026.
- Tennessee wants 0.25% of net worth, at least $100, and then a 6.5% excise tax on income on top.
Run as a sole proprietor and you usually pay none of it, since there's no entity for the state to tax. Of all the cost gaps between staying a sole proprietor and forming an LLC, this is one of the easiest to see.
StructureCost's state pages list each state's entity taxes, with sources.