What is the state franchise tax and how does it work if you register a company at the end of the year?

What you will find in this article:

US taxes and state fees are on the list of main concerns for global companies that operate in the country One of them is the state franchise tax: the rate LLCs and Corps have to pay to renew their state registration. Now, this can become a real issue when the entity is registered in November or December. Would you still have to pay the franchise tax next year? Even though you’ve barely been operating for a few weeks?

Pink post it to remind of the state franchise tax

Learn everything you need to know about this topic and open your company in the US without concerns.

How and when do you have to pay state franchise taxes?

The state franchise tax, also known as the annual report in some US states, should be filled and paid before the end of the second quarter of each calendar year, specific dates vary depending on the state. For example, in Delaware, the process must be done before March 1st, while in New Mexico it’s filed along with the state income tax, and is due by the 15th day of the third month after the end of the fiscal year.

In most US states, if you open a company at the end of the year, you will still need to renew your registration through the state franchise tax or annual report, the same as businesses that started at the beginning of the year.

Now, did you know there’s a solution for that?

Man on the computer filling out a tax form

How to avoid paying it next year if you’re opening your business late the year before?

Some states offer what’s called delayed filing. This is when you request the state to register your business next year despite submitting the formation documentation this year. This way, you get to avoid paying the state franchise tax or annual report in the following year for a company you submitted the documentation for late in the year before.

For example, you’ll get to start paying the state franchise tax as far as 2024, since your LLC or Corp will be formally registered in January 2023.

Now, delayed filing can be tricky, you can get wrapped up in a larger backlog and the delay could go for longer. You could end up waiting more time than needed to start operating.

However, Globalfy has the solution for that. When you open a company in the US with Globalfy in December, you get to decide when to register the entity with the state.

Just fill out our business formation form and choose the option “Hold my process until 2023”. You’ll get an LLC or a C Corp in the US and the unique opportunity to grow in the biggest economy in the world without leaving your home country, 100% online.

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