Annual Report vs Franchise Tax: What Every LLC and Corporation Owner Needs to Know

An annual report and franchise tax are two different business compliance requirements. An annual report updates the state on your LLC or corporation’s business information, while franchise tax is a state-imposed tax or fee for the privilege of doing business. Depending on the state, you may need to file and pay both separately, so understanding the difference is essential to keeping your business in good standing

This is a common question during renewal season, and most of the time it’s a founder looking at two bills with two different amounts to pay. Confusing an annual report with a franchise tax is one of the most common reasons LLCs and corporations fall into bad standing.

What Is an Annual Report for an LLC or Corporation?

An annual report, or, in some states, a statement of information, periodic report, or even a biennial report, is a filing by a business to disclose relevant information to the state. This typically includes:

• Current business address
• Current name and address of members, managers, directors, or officers
• Current name and address of the registered agent
• In some cases, a brief description of your business

Most states set a flat fee to file your annual report, ranging from free to $300 or more, as in Nevada.

If you miss a filing, the state does not send reminders. After the first or second missed filing, most Secretary of State offices put the entity in what is called “not in good standing.” Eventually, “not in good standing” leads to administrative dissolution.

What Is a Franchise Tax and How Does It Work?

Conceptually, a franchise tax isn’t associated with buying a franchise. Rather, franchise taxes are levied at the state level on a company for the privilege of being formed or registered to conduct business in the state, regardless of the company’s profitability.

The franchise tax is generally computed on a case-by-case basis.

Delaware taxes corporations in one of two ways. Corporations either pay a franchise tax based on the number of authorized shares or use the assumed par value method; whichever method yields the lower amount is the amount they pay. LLCs in Delaware pay a $300 franchise tax, due on June 1, and the payment is made without a required report.

California requires LLCs to pay an annual franchise tax to the Franchise Tax Board in the amount of $800, plus additional tax for annual gross receipts over $250,000.

Texas determines franchise tax based on margin (revenue after certain deductions), and for a small LLC, the franchise tax threshold is $2.47 million in annualized total revenue for the 2026 filing period. Although this amount does not incur a tax liability, a filing is required with either the Public Information Report or the No Tax Due Report.

Texas note: A $0 franchise tax filing is still required. There are founders who “skip” the filing and receive a Franchise Tax Forfeiture Notice about six months later.

Annual Report vs. Franchise Tax: What’s the Difference?

Do LLCs and Corporations Need to File Both?

Many states require you to file separately and not combine. Delaware corporations file an annual report and pay franchise tax in the same portal. They both have to be filed by March 1. Delaware LLCs can skip the report and pay only the $300 tax by June 1.

California requires you to file the Statement of Information with the Secretary of State (within 90 days of formation and after that every year or two years, depending on the entity type). You have to file this separately from the $800 franchise tax with the FTB.

New York doesn’t call it a franchise tax for LLCs, but corporations must pay a franchise tax based on income, capital, or a fixed dollar minimum, whichever is highest. It is filed with Form CT-3.

Common Annual Report and Franchise Tax Mistakes

1. Not assuming that one filing will cover both. Forgetting to file the Delaware annual report (required only for corporations, not LLCs) results in late fees of approximately $200, plus 1.5% interest per month.
2. Missing the “no tax due” filing in Texas. Even if your business falls under the revenue threshold, you have to file the report. Not filing will result in the forfeiture of the right to transact business, not just a penalty.
3. Using an incorrect registered agent address. If your registered agent changes or your service lapses, your annual report will be rejected and/or the renewal notification will not reach you.
4. California double-dips and charges $800. If you run your business for even one day in the state, you’ll be on the hook for the minimum franchise tax, and you’ll also have to pay the tax again in April, even if your business didn’t do anything that year.
5. Disregarding state-specific dates. Wyoming ties its annual report to your formation anniversary month, and Florida has a hard due date of May 1. There is no common calendar here.

How to Stay Compliant and Avoid Administrative Dissolution

Clients should track three dates for each business formation: the date of the annual report, the date for the payment of franchise taxes, and the date to renew the registered agent. Each of these individual filing dates should be documented and tracked, as missing any one of them may trigger a domino effect that affects the others. For example, failing to renew your registered agent may prevent you from receiving notifications for the other two.

A basic compliance calendar (either a spreadsheet or a service that tracks it for you) for all states where your entity is registered to document the three dates is by far the best way to maintain business compliance and prevent administrative dissolution.

Annual Report and Franchise Tax Requirements by State

• Wyoming: LLCs with assets under $300,000 are not subject to a franchise tax. The minimum annual report costs $60.
• Nevada: LLCs do not have personal income tax, and each business license costs over $350 with the annual report and the list of active officers or managers.
• Delaware: LLCs and corporations each pay a franchise tax of $300, plus corporations are additionally required to file an annual report.

Frequently Asked Questions About Annual Reports and Franchise Tax

Does franchise tax mean income tax?

No. Franchise tax is an operating tax in a given state and can be charged to an entity without profit. Income tax is charged based on profit.

What happens if I don’t file my annual report?

Most states will move your entity to “not in good standing” after a grace period and will subsequently administratively dissolve it. Reinstating your company will involve paying back fees and a reinstatement cost and is generally more expensive than staying in compliance.

Do sole proprietors have to pay a franchise tax?

More often than not, the answer is no. Franchise tax is levied on LLCs and corporations, and not sole proprietorships, since sole proprietors are not registered with the state as a separate legal entity from the owner.

Can you take care of both filing types for me?

Yes, we can do that. We will track your annual report and franchise tax filing deadlines in each state you are registered in, and we will handle those filings for you. We do not allow any filing to be neglected during our renewal cycles.