Franchise tax, annual reports and state income tax: three different things
Three completely different obligations get called "state tax" in conversation, and confusing them is why founders either overpay accountants for work they do not need or discover a dissolved company two years too late.
They are the annual report, the franchise tax, and state income tax. Different triggers, different authorities, different deadlines, different consequences.
The three obligations side by side
| Annual report | Franchise tax | State income tax | |
|---|---|---|---|
| What it is | Confirming your entity details are current | A charge for the privilege of existing as an entity in that state | A tax on income earned in that state |
| Triggered by | Existing | Existing | Earning income sourced to that state |
| Depends on profit? | No | Usually no - it is due at zero income | Yes, entirely |
| Paid to | Secretary of State, usually | Secretary of State or the state tax authority | The state revenue department |
| Miss it and | Loss of good standing, then administrative dissolution | Penalties, interest, entity voided | Assessment, penalties and interest |
| Applies to a dormant non-resident LLC? | Yes | Yes, where the state charges one | Generally no |
The same thing under fifteen different names
States name these filings almost at random, which is why founders miss them. All of the following are the recurring obligation in some state.
| What the state calls it | Examples |
|---|---|
| Annual Report | Florida, Massachusetts, Illinois, Wyoming and many others |
| Biennial Report or Biennial Statement | Alaska, Indiana, Iowa, Nebraska, New York, Washington DC |
| Periodic Report | Colorado |
| Annual Certificate | Oklahoma |
| Annual Registration Fee | Georgia, Virginia |
| Annual List of Members plus State Business Licence | Nevada |
| Franchise Tax Report | Arkansas |
| Annual LLC Tax, with no report at all | Delaware |
| Business Privilege Tax Return | Alabama |
| Personal Property Return | Maryland |
| Public Information Report | Texas |
| Annual Renewal, with no fee | Minnesota, Mississippi, Idaho |
Search for "annual report" on your state's site and you may find nothing, because your state calls it something else. Search for the entity type and the word "annual" instead, or work from the table in our formation guide, which lists the name and the authority for all fifty states and DC.
Two different things are being taxed here and it is worth naming the federal rule that separates them. Public Law 86-272, codified at 15 U.S.C. section 381, can shield an out-of-state seller from a state's net income tax where its only in-state activity is soliciting orders for tangible personal property. It has no effect on a franchise tax, which is a charge for the privilege of existing as an entity in that state rather than a tax on income — which is why a company protected from a state's income tax can still owe that state's franchise tax on the same facts, and why the two obligations have to be tracked separately.
The ones that hurt
- California - $800 minimum franchise tax, every year, regardless of income. It applies to an LLC that is registered in California or doing business there, and it is due even in a loss-making or dormant year. This single figure is the reason most non-residents should not form in California unless they operate there.
- Delaware - $300 flat annual LLC tax, due 1 June. Delaware LLCs file no annual report; the tax is the whole obligation. Late payment attracts a fixed penalty plus monthly interest, and sustained non-payment voids the entity. Delaware legislated increases effective for the 2026 tax year that first appear in payments due in 2027 - confirm the current amount on the state portal before paying.
- Massachusetts - $500 to form and $500 every year. The highest routine ongoing cost outside California.
- Nevada - about $350 a year once the annual list and the state business licence are combined, several times Wyoming for no benefit a non-resident can use.
- Texas - $0 for most, but not optional. Most LLCs owe no franchise tax because revenue sits below a high no-tax-due threshold, yet the Public Information Report must still be filed annually. A zero bill is not a zero obligation, and this catches people every year.
When state income tax actually applies to you
State income tax is the one obligation that genuinely depends on what you do rather than on where you filed. States apply their own nexus rules and do not follow the federal answer, so it is possible to owe nothing federally and still have a state filing - and far more common to owe nothing in either.
For a non-resident with no US premises, no US staff and no US inventory, state income tax generally does not arise. It starts to arise when any of those appear. Note also that nine states levy no personal income tax at all, which is why Wyoming, Florida, Texas and Nevada come up so often in formation marketing - though for a business with no footprint in any state, that advantage is largely theoretical.
Chartered Advisory maps the recurring obligations for your entity, sets the deadlines against your calendar, and keeps the filings current so the entity stays in good standing.
Avail our US entity compliance servicesA one-page tracker that prevents the whole problem
Almost every lapse is a diary failure rather than a money failure. Fill this in on the day the entity is approved and the problem disappears.
If you have already fallen out of good standing
- Check the entity status on the Secretary of State's search page. Statuses vary: delinquent, not in good standing, administratively dissolved, void.
- Work out how many periods are outstanding. Most states require every missed year to be filed and paid, not just the current one.
- File and pay the backlog plus reinstatement fees. Reinstatement is usually available for a defined window.
- Confirm the registered agent is still appointed. Agents resign when they are not paid, and a resigned agent blocks reinstatement.
- Check the federal position at the same time. An entity that lapsed on state filings has usually missed its federal information return too, and that penalty is far larger than any state fee.
One warning on timing: if a name lapses long enough, another entity can take it. Reinstatement then becomes a rebranding exercise as well as an administrative one.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
My LLC made no money. Do I still owe the annual report and franchise tax?
Yes in almost every state. Both are charges for existing as a registered entity, not taxes on profit. California's $800 minimum is the clearest example - it is due from a dormant LLC with no revenue at all. Only state income tax depends on what you earned.
What actually happens if I just stop filing?
A sequence, not a single event. The entity is marked delinquent, then loses good standing, then is administratively dissolved or voided after a period that varies by state. Along the way your registered agent may resign for non-payment, your bank may freeze the account when it re-verifies status, and the name can be taken by someone else. Reinstatement usually requires every missed year to be filed and paid.
Is franchise tax the same as income tax?
No, and the name is misleading. Franchise tax is generally charged for the privilege of being an entity in that state, and it is commonly a flat amount or based on assets or gross receipts rather than profit. Income tax is charged on income sourced to the state. A company can owe franchise tax while owing no income tax anywhere.
Does the state annual report have anything to do with my IRS filing?
Nothing at all. They are different governments, different deadlines and different forms, and doing one does not satisfy the other. Formation packages that advertise compliance often mean the state annual report only, which is why founders discover the federal information return years late.
Which states have no recurring fee for an LLC?
As at mid-2026 the states with no recurring report fee include Arizona, Missouri, New Mexico, Ohio and South Carolina, while Idaho, Minnesota and Mississippi require a report but charge nothing for it. Verify before you rely on it, because these change, and remember that no state fee does not mean no federal obligation.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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