# State income and franchise taxes: one idea, many names

> Income tax, franchise tax, gross receipts tax, margin tax: what eight states levy on a corporation, and how to tell which one you owe.

Source: https://lopifi.com/learn/state-income-and-franchise-taxes
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**Which state taxes does a startup corporation owe, and why are they called different things?** Income tax, franchise tax, gross receipts tax, margin tax: what eight states levy on a corporation, and how to tell which one you owe.

Most states tax corporations too, and the one constant is that they don't agree on what to call it. A state may levy an income tax, a franchise tax measured on income, a franchise tax measured on capital, a [gross receipts tax](https://lopifi.com/md/glossary/gross-receipts-tax) that ignores costs, a margin tax, or nothing at all. Some cities add a [net profits tax](https://lopifi.com/md/glossary/municipal-net-profit-tax) of their own. Read the name as a label, and look at what the tax is measured on.

| State | Corporate tax | Kind | A franchise or capital tax too |
| --- | --- | --- | --- |
| California | 8.84%, $800 minimum | Income tax | Yes |
| New York | 6.5% (7.25% over $5M) + NYC 8.85% | Income tax | Yes |
| Texas | Franchise tax 0.75% of margin | [Gross receipts or margin tax](https://lopifi.com/md/glossary/gross-receipts-tax) | Yes |
| Washington | None (B&O tax on gross receipts) | [Gross receipts or margin tax](https://lopifi.com/md/glossary/gross-receipts-tax) | No |
| Florida | 5.5% after $50,000 exemption | Income tax | No |
| Massachusetts | 8% + $2.60/$1,000; $456 minimum | Income tax | Yes |
| Delaware | 8.7% flat | Income tax | Yes |
| South Dakota | None | None | No |

What eight states levy on a corporation, from the state guides (each cites its agency; last verified 2026-10-13).

*[Figure: us states map]*

The states on the map, by what they charge. Illustrative of the spread, not a figure to file from.

## Who owes which state

A corporation owes a state's income tax when it has nexus there for income tax, which many states now define partly by [economic presence](https://lopifi.com/md/glossary/economic-nexus) — receipts from customers in the state — as well as by people and property. Federal law (P.L. 86-272) still shields a seller whose only activity in a state is soliciting orders for tangible goods; it doesn't reach services. A company with nexus in several states divides its income among them by [Apportionment](https://lopifi.com/md/glossary/apportionment), in most states by the sales factor alone with services sourced by [where the customer benefits](https://lopifi.com/md/glossary/market-based-sourcing). And a state's starting point is federal taxable income only as far as its [conformity](https://lopifi.com/md/glossary/irc-conformity) goes.

**Northwind — Formed in one state, taxed in another.** Northwind is a Delaware corporation that doesn't do business in Delaware. Delaware's corporate income tax (8.7% flat) is for corporations doing business there, so Northwind doesn't file one, but it still owes the franchise tax for existing ([lesson 2](https://lopifi.com/md/learn/delaware-franchise-tax-calculation)). Its home state, where the shop and staff are, is where its state income tax return goes.

**Use case — A minimum tax on a loss.** California is the common surprise: its corporate tax is 8.84%, $800 minimum, and the state guide explains that a newly qualified corporation doesn't owe the minimum in its first taxable year but does from the second year on, even at a loss. A tax measured on income can still have a floor.

**Income tax**
- Pro: Little or nothing owed in a loss year (minimums aside).
- Pro: Follows the federal return as its starting point.
- Con: Needs apportionment once the company has nexus in more than one state.
- Con: Some states add a minimum or a capital-based tax.
- Best for: Most states.

**Gross receipts tax**
- Pro: Simple base: what came in.
- Pro: No apportioned profit to compute.
- Con: Owed on revenue, profit or loss, because costs aren't deducted.
- Con: An operating expense, not an income tax, so it sits above the tax line.
- Best for: Washington, Ohio, Nevada and a few others, which tax receipts instead.

Two ways a state taxes a business, as a founder feels them.

**Wrong:** It's called a franchise tax, so it's like Delaware's.

**Right:** Read each state's tax by its base: income, receipts, margin or capital.

Texas calls its tax a franchise tax and measures it on margin; California calls its corporate income tax a franchise tax too. The name tells you little. What it's measured on tells you where it goes in the books and when it's owed.

> **Every state names its business taxes differently. Find what each is measured on, and where the company has nexus for it.**

## Where this lesson's rules come from

- [Wikipedia, “Franchise tax”](https://en.wikipedia.org/wiki/Franchise_tax) — A levy some US states charge businesses with a nexus in the state (reference)
- [Delaware Division of Corporations — Annual Report and Tax Information](https://corp.delaware.gov/frtax/) — Due date, the $50 annual report fee, minimum and maximum tax, the $200 penalty and 1.5% monthly interest (state)

## Read further

- https://lopifi.com/md/startups/registering-in-a-new-state
- https://lopifi.com/md/startups/startup-tax-deadlines-by-month
- https://lopifi.com/md/accounting/asc-740
- https://lopifi.com/md/accounting/voluntary-disclosure-agreement

- **Track:** [Compliance & tax](https://lopifi.com/md/learn/compliance)
- **Lesson:** Lesson 5 of 10 — 9 min
- **Terms taught:** [Gross receipts tax](https://lopifi.com/md/glossary/gross-receipts-tax), [Economic nexus](https://lopifi.com/md/glossary/economic-nexus), [Apportionment](https://lopifi.com/md/glossary/apportionment), [Market-based sourcing](https://lopifi.com/md/glossary/market-based-sourcing), [IRC conformity](https://lopifi.com/md/glossary/irc-conformity), [Municipal net profit tax](https://lopifi.com/md/glossary/municipal-net-profit-tax)
- **Previous:** [Corporate estimated tax: four installments a year, Compliance · Lesson 4](https://lopifi.com/md/learn/corporate-estimated-tax-payments)
- **Next:** [Sales tax nexus: physical presence, Wayfair and economic thresholds, Compliance · Lesson 6](https://lopifi.com/md/learn/sales-tax-nexus-after-wayfair)
- **The course:** https://lopifi.com/md/learn