What Are Franchise Taxes?

If you’re a business owner in Arkansas, there’s an important deadline to keep on your radar: franchise taxes are due May 1.

Despite being a required filing, franchise tax is often misunderstood—even among business owners. Here’s a quick guide to help you understand the basics.

What Are Franchise Taxes?

A common misconception is that franchise tax only applies to franchise business models, like a restaurant location that operates as a franchise of it’s parent company. While that may be what the term “franchise” usually refers to, in the case of taxes it’s a misnomer.

Franchise tax is a tax that a state requires from businesses for the privilege of doing business in that state. Each state’s franchise tax varies, and some states have it in addition to or instead of income tax or other business taxes. In Arkansas, franchise taxes are only one of several taxes business must pay.

Franchise taxes in Arkansas are a flat rate and are not based on your revenue or profit. Even if a business didn’t make any profit in the last year, that business still owes the same amount in franchise taxes.

Who Must Pay Franchise Taxes?

All corporations, LLCs, banks, and insurance companies registered in Arkansas must pay a franchise tax annually. If your business is one of the structures that owes franchise taxes, it’s not something to blow off. Failing to pay can accrue fees, penalties, interest, and even lead to the state of Arkansas revoking your authorization to do business here.

One thing to remember is that any overdue franchise taxes must be paid before you can start another business in Arkansas. So say you had a previous business that hasn’t operated in years, and you’re about to start an new one. If you didn’t pay franchise taxes for the business or if you didn’t officially dissolve the business, you’ll need to pay all the franchise taxes you owe before the state will allow you to start a new business.

How Do I Pay My Franchise Taxes?

In Arkansas, franchise taxes are managed and collected by the Arkansas Secretary of State’s office. The rate of your franchise tax depends on your business classification. You can learn more about how much you franchise tax you owe and pay online on the Arkansas Secretary of State website.

Did franchise tax sneak up on you this year? It’s easy to get lost in all the taxes a small business owes. We help business owners like you prepare for taxes, making sure they never come as a surprise. Reach out for a free consultation to see how we can help!