Franchise tax for multi-member LLCs

I conducted targeted web searches and authority-page extractions to gather comprehensive, state-specific and federal information about how franchise/privilege taxes and similar entity-level taxes apply to multi-member LLCs in the United States.

Steps taken:

I conducted targeted web searches and authority-page extractions to gather comprehensive, state-specific and federal information about how franchise/privilege taxes and similar entity-level taxes apply to multi-member LLCs in the United States.

Steps taken:

Performed broad web searches (multiple search queries) to locate up-to-date, state-level guidance and aggregator summaries of states that impose franchise-style taxes on LLCs. Sources included industry reference pages and state tax portals.

Extracted detailed information from key authoritative pages (state tax authorities and the IRS) to capture specific rules that affect multi-member LLCs

California Franchise Tax Board (LLC rules and fees), Texas Comptroller (franchise tax/margin calculation and thresholds), Delaware Division of Corporations (annual tax rules for LLCs and corporations), and the IRS page on LLC classification. I also included reputable aggregator resources (Discern, ZenBusiness) to cross-check the broader list of states that impose franchise or privilege taxes and to capture summary comparisons. Summary of the most relevant findings (what a multi-member LLC founder/US business owner needs to know): - Federal tax classification (IRS): By default a multi-member LLC is treated as a partnership for federal income tax purposes unless the LLC timely elects to be treated as a corporation (Form 8832) or as an S corporation (Form 2553). This classification affects only federal (and often state) income taxation; many states use federal classification as a starting point for state filing obligations, but states vary in whether they subject LLCs to entity-level franchise/privilege taxes regardless of federal classification. (IRS citation below.) - States differ widely: Some states impose explicit franchise/privilege taxes that apply to LLCs (either regardless of tax classification or only when an LLC elects corporate treatment). Others have no franchise tax but may impose other annual fees or gross-receipts taxes (B&O) that can hit LLCs. Representative authoritative state rules: - California (Franchise Tax Board): "Every LLC that is doing business or organized in California must pay an annual tax of $800." In addition, CA imposes a graduated LLC fee based on total California income (table: $250k$499,999 = $900; $500k$999,999 = $2,500; $1M$4,999,999 = $6,000; $5M+ = $11,790). First-year timing and exceptions noted on the FTB site. Filing uses Form 568 and payments via Form FTB 3522 (and FTB 3536 for estimated fee payments). CA due dates: annual $800 due by the 15th day of the 4th month after the beginning of the LLCs taxable year; fee estimated payment due by the 15th day of the 6th month. (FTB citation below.) - Texas (Comptroller): Texas imposes a franchise (privilege) tax on taxable entities formed or doing business in Texas. It is calculated on a "margin" base with multiple computation options (70% of revenue; revenue minus cost of goods sold; revenue minus compensation; or revenue minus $1M). Key thresholds and rates (report-year dependent) include a No-Tax-Due threshold ($2,650,000 in the most recent table), tax rates for most entities (0.75% other than retail/wholesale; 0.375% for retail/wholesale), and an EZ computation option with a lower rate. Texas uses an annual report/franchise filing; rates, thresholds, and deduction limits change by year. (Texas citation below.) - Delaware (Division of Corporations): Corporations incorporated in Delaware must file an Annual Franchise Tax Report and pay corporate franchise tax (minimums depend on calculation method). Separately, Delaware limited partnerships, LLCs and general partnerships formed in Delaware "are required to pay an annual tax of $300.00" due on or before June 1 each year; penalty for nonpayment or late payment is $200 and interest accrues at 1.5% per month. (Delaware citation below.) - Additional states: Several other states impose franchise-style taxes (Alabama Business Privilege Tax; Arkansas franchise tax; Georgia net-worth tax; Illinois franchise/paid-in cap tax; Louisiana franchise tax; Mississippi; New York corporate franchise (often only when LLC elects corporate status); North Carolina franchise tax (corporate); Tennessee franchise & excise tax; Vermont business entity tax; plus states with gross-receipts-style taxes such as Washington B&O). The list and details vary by state; many authoritative listings and state pages confirm these variations. (Aggregators Discern and ZenBusiness cited below for consolidated lists and cross-checking.) Compliance and practical guidance for multi-member LLCs: - Determine federal tax classification first (IRS default = partnership for multi-member LLCs). Then check each state where you are organized or do business for entity-level taxes that apply to LLCs: some states tax LLCs regardless of federal classification (e.g., Californias $800 minimum), others only apply franchise/corporate-style taxes if the LLC elects to be taxed as a corporation. - Nexus and apportionment: If you do business in multiple states, determine nexus (economic and physical). Many states apportion income or use receipts-based factors. For entity-level franchise/privilege taxes that use net worth, capital, or gross receipts, apportionment rules and sourcing can materially affect tax due. - Minimums, estimated payments, and penalties: Many states have minimum annual taxes or fees (CA $800; DE $300 for LLCs; TN minimums/penalties; TX no-tax-due threshold but may owe if over threshold). States often require estimated payments or quarterly installments for larger liabilities; late payment penalties and interest commonly apply. - Filing forms and due dates: File the state-specific forms (e.g., CA Form 568 and vouchers; Texas franchise reports with Comptroller; Delaware annual tax via Division of Corporations). Keep a calendar for state due dates  they vary and are not always synchronized with federal returns. - Governance and operating agreement: For multi-member LLCs, allocate profits and losses clearly in the operating agreement; the LLCs federal classification and state filing choices (e.g., S-corp election) affect member-level reporting and self-employment tax exposure. - Consider elections and entity choice: If state franchise taxes are significant, evaluate whether electing corporate taxation (C or S) or reorganizing into a different entity changes overall state tax burden; run state-by-state modeling with a CPA. - Use a professional: Because state rules differ and calculations can be complex (apportionment, multiple computation methods, thresholds), consult a CPA or state tax counsel for multistate LLCs. Next recommended steps for content generation (blog post and newsletter content): - Use the authoritative citations below for quotes and examples (California, Texas, Delaware, IRS). - Provide a clear checklist for multi-member LLC owners: federal classification, registration and registered agent, identify states of nexus, list of states that impose franchise/privilege taxes with representative examples, calendar of common due dates, recommended recordkeeping for apportionment, and sample scenarios showing calculations (e.g., CA $800 + LLC fee vs. Texas margin computation). - Include call-to-action: consult a CPA and link to state agency forms and due date pages. If you want, I can now use these findings to generate the complete blog post, the newsletter draft (subject line provided), SEO meta, slug, excerpt, and suggested state-by-state appendix. Specify length and tone (e.g., ~1,2001,800 words, professional but approachable) and whether to include a downloadable checklist and sample calculations. Citations and verbatim excerpts supporting the summary (verbatim excerpts are shown exactly as extracted):