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 New Jersey, the franchise tax is essentially the Corporation Business Tax (CBT), which applies to corporations and other entities that are either incorporated in the state or doing business in New Jersey. This tax is considered a tax on the privilege of doing business in the state. The CBT is calculated based on a corporation's entire net income, which is the corporation's total income from all sources, and is apportioned to New Jersey based on a formula that takes into account the corporation's property, payroll, and sales within the state. The specific tax rates and the apportionment formula can vary, and there are different filing requirements and tax structures depending on the type of entity and the amount of income or activity conducted in New Jersey. It's important for businesses to consult with an attorney or a tax advisor to understand their specific obligations under New Jersey's franchise tax laws.