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is a tax charged by some US states to corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
s with a nexus (aka a filing obligation) with those states. The common feature of a state's franchise tax is that it is not based on income. Rather, the typical franchise tax calculation centers around the "net worth" of the taxpayer.
Typically, the number of shares they issue or, in some cases, the amount of their assets is used to make this determination. The purpose of the tax is to raise revenue for the state.
The state of Delaware
Delaware is a U.S. state located on the Atlantic Coast in the Mid-Atlantic region of the United States. It is bordered to the south and west by Maryland, and to the north by Pennsylvania...
has a significant franchise tax, while other states, such as Nevada
Nevada is a state in the western, mountain west, and southwestern regions of the United States. With an area of and a population of about 2.7 million, it is the 7th-largest and 35th-most populous state. Over two-thirds of Nevada's people live in the Las Vegas metropolitan area, which contains its...
, have none at all or a smaller one.
On the other hand, states with higher corporate income taxes usually have low franchise taxes and vice versa. Thus in the case of Delaware, it has no corporate income tax for companies that are listed as operating in the state, but a substantial tax applies to those that do business outside of the state.