Franchise Tax
Franchise tax is a state tax on the privilege of doing business there, computed on margin, net worth or a flat fee depending on the state, and unrelated to franchising. The one most sellers meet is Texas's: it applies above a no-tax-due threshold of roughly $2.47 million in annual revenue, computed on "margin" with a choice of deduction methods. Delaware charges its famous flat-fee version, which is why every Delaware LLC owes something annually regardless of activity.
The classic marketplace-seller mistake on Texas franchise tax is using bank deposits as revenue. The report asks for gross revenue, the same figure your 1099-Ks reflect, and deposits understate that by the 15% to 25% the marketplace withheld in fees. A seller whose deposits total $2.3 million but whose gross is $2.9 million isn't under the no-tax-due threshold; they're over it, misfiled, and accruing exposure. Books built from settlement reports produce the right number automatically.
When tax is due, Texas lets you compute margin as total revenue times 70%, or revenue minus COGS, or revenue minus compensation, whichever is least, and for inventory businesses the COGS method usually wins, which makes accurate landed-cost COGS a direct tax saver. Out-of-state sellers aren't exempt either: Texas applies a $500,000 economic nexus threshold to the franchise tax. Getting the report right is routine work inside our ecommerce tax services.
Where this shows up in our work
This isn’t textbook material for us; it’s the day-to-day of keeping seller books right. See how we handle it in practice:
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