States With No Franchise Tax for LLCs (2026)
Most new business owners assume they only pay taxes if they make a profit. They are wrong. Many states impose a "Franchise Tax"—a fee you must pay just for the right to exist in the state, even if your business loses money.
Quick Answer
There are 15 states that do not impose any form of franchise tax (or 'privilege tax') on LLCs. The most notable tax-free states for forming an LLC are Wyoming, Nevada, Florida, and South Dakota.
Key Points for 2026
- It is not an Income Tax: A franchise tax is usually based on your net worth, gross receipts, or is a flat fee. It has nothing to do with your profit.
- The California Problem: California has the most infamous franchise tax, a flat $800 minimum per year.
- The Delaware Trap: Delaware charges a flat $300 franchise tax every year for LLCs, despite being known as a business-friendly state.
The 15 States with No Franchise Tax
If you form an LLC in one of these states, you will not be charged a franchise tax for existing:
- Alaska
- Colorado
- Florida
- Hawaii
- Idaho
- Indiana
- Maine
- Michigan
- Montana
- Nevada (Note: Nevada has a Commerce Tax on gross revenue over $4M, but no flat franchise tax)
- Oregon
- South Dakota
- Utah
- Washington (Note: Washington has a B&O tax on gross receipts)
- Wyoming
The Sneaky States
Some states claim they don't have a franchise tax, but they have a massive Annual Report fee instead. For example, Massachusetts doesn't have a franchise tax, but they charge $500 a year to file your annual report. Functionally, it is the exact same thing: a tax to exist.
Other states, like Texas, have a Franchise Tax, but the threshold is so high ($2.47 million in gross revenue) that 95% of small businesses will never pay a dime. They just have to file the $0 paperwork.
If you live in California and form an LLC in Wyoming to avoid the $800 franchise tax, the California Franchise Tax Board will still find you. California law requires any business managed from California to pay the $800 tax, regardless of where it was formed.
Example Scenario
Scenario A: You live in Florida and form a Florida LLC. Florida has no state income tax and no franchise tax. You only pay the $138.75 annual report fee.
Scenario B: You live in Delaware and form a Delaware LLC. You pay a $300 franchise tax every year, even if your LLC made $0 in revenue.
What to Do Next
- Live local, form local: If you operate a physical business, you must form the LLC in your home state and abide by its tax laws.
- Online businesses: Choose Wyoming to legally avoid franchise taxes and state income taxes.