Franchise Tax for Corporate Houses

Let us begin by understanding what Corporate Franchise Tax is and which corporate houses are liable to pay it. Before we go further in technical details of corporate franchise tax we should study the underlining principle behind imposing this tax. Usually large corporate houses not only get economies of scale as a result of their huge scale of operation but also get many other advantages derived as a result of operating a large scale business entity. Government authorities in their endeavour to provide level playing field to all business houses has imposed this special corporate tax specific to large business corporate houses.

The concept of corporate franchise tax dates way back to 19th century. This tax needs to be submitted on 1st January or after that for each financial year. As per Chapter 351 this tax has to be paid by both foreign and domestic corporations operating within United States and have surpassed total assets base of 10 million US Dollars. For any business corporate whose assets base has crossed $ 10 million in year 2010 must pay this tax on or after 1st Jan 2011.

After having known the concept and reasoning behind the corporate franchise tax let us now understand how it is calculated. All the corporate who come under preview of this tax must calculate this tax in following manner: The value assigned to each share is to be taken not less than $5 or its original value (Whichever is higher) for the calculation of the assets base. Once we arrive at the figure of the asset base of a business entity (and it surpasses the $ 10 million limit), it becomes not so difficult to calculate the corporate franchise tax. The current applicable tax rate is one third of a percent or 0.0003. The tax rates are subject to timely revision and one should always check for the latest for accurate calculations.

There are also certain special provisions which one should keep in mind with regards to calculation of this tax. For the business unit which are going in for dissolution might be subjected to exit tax for any unreported income for the previous two assessment years. Also it should also be noted that any income or losses arising out of sale of any property in direct or indirect possession of concerned entity must also be adjusted.

Corporations which do not come under the preview of this special tax are non- profit organizations, investments trusts, credit unions and any other specific establishment exempted by law.

Above is a brief about the franchise tax for corporate houses.


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