Franchise Tax Rules

• A franchise tax is levied against corporations by some states and is not typically a tax on income, but a privilege tax corporations have to pay, for the privilege of doing business in a particular state. The tax is levied against the net worth of a corporation's assets or its capital value and some states apply the tax to corporations based outside the state but doing business within the state.
  
  

Texas Reports and Due Dates

• In Texas, Rule 3.544 of the Texas Administrative Code contains the requirement for reporting franchise tax liabilities in the state. The rule applies to all corporations based in the United States and overseas that are subject to the franchise tax. These corporations must file an initial report of financial accounts with the comptroller of public accounts, and after filing the initial report, must file a report of accounts every year after that. If a company is in receivership, the receiver handling the receivership process must file the franchise tax report, and the receiver, or any trustee responsible for the reorganization of a corporation as a result of bankruptcy, must file the franchise tax report on behalf of the corporation. The initial franchise tax report must be filed within 89 days of the first anniversary of the corporation's beginning date, where the beginning date is the date when a corporation's Texas state charter takes effect. For corporations based outside Texas, the beginning date is the date the corporation first conducts business in the state.
  
  

Foreign Business Franchise Tax Liability in New York

• Most businesses operating in New York are obliged to pay franchise tax according to Article 9-A of the New York Tax Law. Exceptions to this rule include banking and insurance businesses, which are taxable under other articles of the Tax Law. Any business not registered in the state of New York, but which does business, leases or owns property, or has an office in New York, must pay franchise tax, according to Tax Law Article 9-A. A business based outside New York is considered a foreign business, and must be authorized by the New York Department of State to conduct business in the state. All authorized businesses must pay the annual maintenance fee, according to Article 9, section 181.1 of the New York Tax Law, but this fee is then applied as a credit against any franchise tax the corporation is liable to pay. A foreign business is liable to pay franchise tax in New York until it surrenders its authority to do business in the state and the Tax Commissioner must give consent for a corporation to surrender its authority.
  
  

Ohio Voluntary Franchise Tax Liability Disclosure

• In Ohio, the Department of Taxation has introduced a voluntary disclosure of corporation franchise tax program. A corporation that owes franchise tax to the department can elect to voluntarily disclose those liabilities. By doing so, the corporation avoids an investigation, audit and assessment of liability plus penalties. The rule is that a corporation must apply to enter the program before the Ohio Department of Taxation has contacted it regarding the potential franchise tax liability. To enter the program, a corporation representative, which can be a lawyer or accountant acting on behalf of the corporation, must write to the Department of Taxation giving details of the corporation's business activities in the state, and details of the corporations accounting period. Once the Department of Taxation has agreed to allow the corporation to enlist in the program, the corporation must use form FT 1120 to file a report, and must pay the tax due, and any interest, but the Department of Taxation normally waives any penalties.