Florida doesn’t charge corporations a franchise tax the way Delaware, Texas or California do. A Florida corporation pays a $150 annual report fee to stay in good standing and, if it’s a profitable C corporation, a 5.5% corporate income tax. There’s no tax based on your authorized shares, net worth or revenue. Florida repealed its corporate franchise tax in 1972.
What do Florida corporations actually pay?
| Obligation | Who pays | Amount |
|---|---|---|
| Annual report fee | Every corporation | $150 a year, due by May 1 |
| Corporate income tax | C corporations with Florida income | 5.5% of Florida taxable income |
| Sales and use tax | Businesses selling taxable goods or services | 6% state rate plus local surtax (up to 2.5%) |
| Reemployment tax | Employers | New employers pay 2.7% on the first $7,000 of each employee’s wages |
| Property tax | Businesses that own real estate or tangible property | Set by local governments |
| Documentary stamp tax | Certain documents and transactions | Varies, applies to things like real estate transfers |
The confusion usually comes from the income tax return’s name. Florida’s return is Form F-1120, the “Florida Corporate Income/Franchise Tax Return.” For a typical corporation, it’s one tax on net income. It isn’t a second charge on top.
What is a franchise tax, anyway?
It’s a tax for the privilege of being incorporated in, or doing business in, a state. It has nothing to do with franchising a restaurant. Instead of profit, states usually base it on one of these:
- Total revenue
- Net worth or capital
- Number of shares
- A flat annual amount
That’s the part that hurts. You can owe a franchise tax in a year you lose money.
How do other states charge it?
Delaware taxes corporations on authorized shares or by the assumed par value capital method. The minimum is $175. Corporations with a lot of authorized shares can owe $200,000 or more a year. Delaware LLCs pay a flat $300 annual tax.
Texas charges a franchise tax on margin (revenue minus certain deductions) for businesses above a revenue threshold of $2.47 million. The rate is 0.75% for most businesses and 0.375% for retail and wholesale.
California charges a minimum $800 annual franchise tax for corporations and LLCs, regardless of income.
New York taxes corporations on business income, capital, or a fixed minimum, whichever is highest.
Florida or Delaware?
Delaware’s share-based tax is the one that catches startups. Authorize millions of shares for future funding rounds and an option pool, and under the authorized shares method the bill can be large even if the company has no revenue. (Recalculating under the assumed par value capital method often cuts it a lot, but you have to do that.) Florida doesn’t care how many shares you authorize.
There’s a second point people miss. If you form in Delaware but operate in Florida, you don’t escape Florida. You’ll register as a foreign corporation here, pay Florida’s annual report fee, and owe Florida corporate income tax on your Florida income. On top of that, you’ll pay Delaware’s franchise tax, Delaware’s annual report fee, and a Delaware registered agent.
Delaware still makes sense in a few cases:
- You’re planning an IPO and want Delaware’s body of corporate case law
- You need specialized governance structures
- Your investors require it
For a business that operates mainly in Florida and isn’t raising venture money, we’d incorporate in Florida. It’s cheaper and there’s one state to deal with, not two.
Does the 5.5% income tax apply to you?
Only if you’re a C corporation, or an LLC that has elected to be taxed as one. S corporations, partnerships, sole proprietorships and LLCs with default taxation are pass-through entities, so they don’t pay it at the entity level. Their owners report the income personally, and Florida has no personal income tax.
The tax starts from your federal taxable income, with Florida adjustments. If you operate in several states, you pay Florida tax only on the share of income apportioned to Florida.
Because the tax is based on income, it shrinks in a bad year. A corporation with no profit owes the $150 annual report fee and nothing more.
Is the $150 annual report fee a franchise tax?
No, though it gets called one. It’s an annual payment, it’s required for good standing, and missing it leads to penalties and eventually dissolution. That’s where the resemblance ends. It’s a filing fee, and it stays $150 no matter how large your corporation is.
LLCs file the same kind of report, for $138.75.
What do you have to file each year?
Annual report. File between January 1 and May 1 on Sunbiz, the Florida Division of Corporations site. The fee is $150, payable by credit card, e-check or account. After May 1, a $400 late fee is added.
Corporate income tax return. C corporations with Florida income file Form F-1120. For calendar-year corporations it’s due May 1, after the federal return. If you need more time, file Florida’s own extension form (F-7004). A federal extension doesn’t cover it.
Other returns, depending on your business:
- Sales tax returns, filed monthly, quarterly or annually depending on how much you collect
- Reemployment tax reports, filed quarterly
- Federal Form 1120, or Form 1120-S for S corporations
Frequently asked questions
Does Florida have a franchise tax for corporations?
No. Corporations pay a $150 annual report fee and, if they’re C corporations with Florida income, a 5.5% corporate income tax.
What’s the difference between a franchise tax and a corporate income tax?
A franchise tax charges you for the privilege of doing business, often based on capital, assets or shares. An income tax is based on profit. Florida charges corporations only the income tax.
How much does it cost to keep a Florida corporation going?
At minimum, $150 a year for the annual report. Add 5.5% corporate income tax if you’re a profitable C corporation, registered agent fees ($0-200 a year), accounting, and any sales or employment taxes that apply.
Do Florida LLCs pay a franchise tax?
No. They pay a $138.75 annual report fee. With default taxation, the income passes to the members, and Florida doesn’t tax personal income.
What happens if I don’t file the annual report?
After May 1 you owe a $400 late fee. If the report is still missing by the third Friday in September, the state administratively dissolves the corporation. You can reinstate it, but it costs more, and you risk losing your corporate name.
Does Florida tax out-of-state income?
No. A multi-state corporation apportions its income and pays Florida tax only on the Florida share. You file in Florida if you have enough connection (nexus) here.
Where this leaves you
If your business is based in Florida, the franchise tax question mostly answers itself: form here, file your $150 annual report every spring, and plan for the 5.5% income tax only if you’re a profitable C corporation. If someone’s pushing you toward Delaware, ask them which of the three reasons above applies to you. If none does, you’d be paying two states for the privilege of operating in one.