Sole proprietorships, limited liability companies, and partnerships do not pay income taxes. As a general rule, only corporations are required to pay corporate income taxes. Companies that don't make a profit do not have corporate income tax liability.
Another difference between income tax and franchise tax is the entity that does the taxing.Ĭompanies pay income taxes on the business's profit, or the company's net income. The difference is found in looking at what exactly is being taxed. There are two different types of taxes that can be assessed on businesses: corporate income taxes and franchise taxes. When a business fails to pay a franchise tax, this may result in the business being disqualified from doing business in a particular state. Like income taxes, typically franchise taxes are assessed annually. This tax is assessed to these companies for the privilege of either doing business in the state or incorporating their business in that state. A corporate franchise tax is a tax imposed by a state on corporations, LLCs, and partnerships.
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