You know that saying “what you don’t know won’t hurt you?” Well, with all due respect to the author of this well-known saying, it’s just not true when it comes to taxes.
Most eCommerce business owners, such as Amazon or Shopify sellers, have a general understanding of income tax obligations and get a general idea of what they expect to pay in taxes in whatever state they are doing business. When it comes to Franchise taxes, the overall topic seems to be an area many online sellers are unaware of. Here is a classic case of what you don’t know WILL hurt you- at least financially.
What is franchise tax?
Franchise tax (sometimes referred to as net worth tax) is essentially a state’s way of taxing you for the privilege of doing business in their state.
Not all states impose a franchise tax and some states will only impose it on corporations but not partnerships or LLCs. Depending on the state, the tax amount can range from a flat fee across all entity types, can be calculated based on your business’ income or may be based on another factor entirely such as the amount of your business’ paid in capital.
A corporation or other business entity will usually be required to pay franchise tax in its home state (if that state imposes a franchise tax) but it may also have to pay franchise taxes in other states in which it does business or owns property.
What do franchise taxes mean for your eCommerce business?
To answer you like any accountant: it depends.
The specific deadline and filing requirements for Franchise taxes vary depending on the registration location of your company and the type of legal entity but state deadlines (including Delaware) start around March 1.
In many states, if you don’t pay the required amount on time your business can be assessed interest and penalties or you may lose the right to conduct business in that state.
It’s important to be informed about your business’ potential Franchise tax liability. Feel free to reach out to one of our trained Finaloop tax professionals to see if we can help you understand a bit more about your Franchise tax obligations. Remember folks, knowledge is power, or, in this case, money.
Here are the links to our blog posts on Franchise tax in Delaware, California, Georgia, Florida, and Illinois - the states that we have found are most common registration states for our bookkeeping and tax eCommerce users.
*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*