A franchise tax is a state tax on businesses and other entities (corporations, limited liability companies, trusts, etc.) that are formed in or doing business in a state.
A franchise tax is said to be a tax on the privilege of doing business in a state and is sometimes referred to as a privilege tax. The amount of tax due is often calculated as a percentage of a business’s income, for example.
In Maryland, the franchise tax is a tax levied on certain businesses for the privilege of incorporating or doing business in the state. This tax applies to corporations, business trusts, limited liability companies (LLCs), limited liability partnerships (LLPs), and state financial institutions. The franchise tax is not calculated as a percentage of the business's income. Instead, it is based on the company's personal property and/or the company's Maryland gross receipts. For entities that own or lease personal property in Maryland, the tax is calculated on the assessed value of this property. For entities that do not own or lease personal property in Maryland, the tax is based on gross receipts attributable to Maryland. The specific rates and methods of calculation can vary, and there are certain exemptions and credits available. It is important for businesses to consult with an attorney or a tax professional to understand their specific obligations under Maryland's franchise tax laws.