Glossary
Compliance & Tax

State Franchise Tax

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

A state franchise tax is a fee some states charge organizations for the privilege of operating within their borders, often separate from income tax.
A State Franchise Tax is a levy imposed by individual states on certain businesses for the privilege of doing business within that state, regardless of income or profit levels. Unlike income taxes, franchise taxes are typically based on a business’s net worth, capital, or assets in the state rather than earnings. Nonprofits may be exempt in some states, but rules vary widely and compliance is critical. The tax is often due annually and failure to pay can result in penalties or loss of good standing with the state. Proper classification and registration of your organization are key to determining liability for this tax. Staying informed about state-specific requirements ensures that organizations remain compliant and avoid unnecessary costs.

Key Takeaways

  • Not all states impose a franchise tax on nonprofits
  • It is based on net worth or capital, not income
  • Rules and exemptions vary by state
  • Non-compliance can lead to penalties
  • Aplos can help track compliance deadlines

Why It Matters

Nonprofits must know if they owe this tax to avoid penalties and maintain legal compliance.

Real World Example

A nonprofit arts organization registered in Texas discovers that, although it does not generate significant taxable income, it is still subject to the Texas Franchise Tax because it operates within the state. The organization uses Aplos to track its annual filing deadline and gathers the necessary documentation to determine whether it qualifies for an exemption. By staying up to date with state requirements in Aplos, the nonprofit successfully files the necessary paperwork, avoids late penalties, and maintains its good standing with the Texas Secretary of State. If the organization had missed the filing, it could have faced fines or even administrative dissolution.

How Aplos Helps

Aplos helps nonprofits track compliance deadlines and financial obligations, including state franchise tax filings. Organizations can use Aplos to manage necessary documents and monitor state-specific tax requirements, streamlining the process of staying compliant and avoiding penalties.
launch trading trade finance startup icon

Try it yourself. Start your 15 day free trial

No commitment or credit card required.

Try it For Free

Frequently Asked Questions

Do all nonprofits need to pay state franchise tax?

No, not all nonprofits are subject to state franchise tax. Requirements and exemptions vary by state, so it's important to check your state's rules.

How is state franchise tax calculated?

It is usually based on an organization's net worth, capital, or assets within the state, rather than on income or revenue.

What happens if my nonprofit doesn't file or pay the franchise tax?

Failure to file or pay can result in penalties, fines, or loss of good standing, which may affect your nonprofit’s ability to operate in the state.

Can Aplos help track state franchise tax deadlines?

Yes, Aplos allows organizations to track compliance deadlines and store important tax documents, helping you stay on top of franchise tax filings.

Related Terms

Revenue Recognition
Board‑Designated Fund
Fringe Benefit
External Audit
Work in Process Inventory
Interfund Transfer

Aplos has everything you need in one place for streamlined nonprofit and church management.

Start A Free Trial

Copyright © 2025 Aplos Software, LLC. All rights reserved.

Aplos partners with Stripe Payments Company for money transmission services and account services with funds held at Fifth Third Bank N.A., Member FDIC.

Aplos

Our StoryTeam AplosCareersReviewsContact UsSecurity

Resources

AcademyAPIPartnershipsReferral PartnersAplos StatusAplos Glossary

Products & Features

Nonprofit SoftwareChurch SoftwareNonprofit AccountingChurch AccountingDonor ManagementNonprofit CRMOnline DonationsFundraising SoftwareText to GiveBill PayPayrollPrepaid Cards

For Customers

Support CenterTraining CenterFind An Aplos Advisor

Compare Us

Compare Quickbooks® For NonprofitsCompare Quickbooks® For ChurchesCompare Sage Intacct For Nonprofits

Services

Nonprofit Bookkeeping ServicesChurch Bookkeeping ServicesImplementation Services
Start A Free Trial

Copyright © 2024 Aplos Software, LLC. All rights reserved.

Aplos partners with Stripe Payments Company for money transmission services and account services with funds held at Fifth Third Bank N.A., Member FDIC.

Legal StuffPrivacy Policy
California Consumer Privacy Act NoticeDo Not Share My Personal Information