LLC Taxes by State: Complete 2026 Comparison

How LLCs Are Taxed

Before diving into state-by-state comparisons, it is important to understand how LLC taxation works at the federal level. An LLC is a "pass-through" entity by default — the LLC itself does not pay federal income tax. Instead, the LLC's income and losses pass through to the individual members' personal tax returns, where they are taxed at the individual's personal income tax rate.

Single-member LLCs are taxed as sole proprietorships (income reported on Schedule C). Multi-member LLCs are taxed as partnerships (the LLC files Form 1065 and issues K-1s to each member). Either type can elect to be taxed as an S-Corporation or C-Corporation if that structure is more beneficial.

Federal taxation is the same regardless of which state your LLC is formed in. The differences arise at the state level, where states impose varying combinations of income taxes, franchise taxes, gross receipts taxes, annual fees, and other assessments on LLCs.

States With No State Income Tax

Nine states do not impose a state-level income tax: Alaska, Florida, Nevada, New Hampshire (no tax on earned income; taxes investment income only), South Dakota, Tennessee, Texas, Washington, and Wyoming. If your LLC is formed and operates in one of these states, your LLC profits are not subject to state income tax. However, several of these states impose other taxes on businesses.

Texas has no state income tax but imposes a franchise tax (also called the margin tax) on businesses with total revenue exceeding $2.47 million. Below that threshold, you owe $0. Above it, the tax rate is 0.375 percent for retail and wholesale businesses and 0.75 percent for all other businesses, calculated on the lesser of total revenue minus cost of goods sold, total revenue minus compensation, 70 percent of total revenue, or total revenue minus $1 million.

Washington has no state income tax but imposes a Business & Occupation (B&O) tax on gross receipts. The rate varies by business classification — retailing is 0.471 percent, service businesses are 1.5 percent, and manufacturing is 0.484 percent. Unlike income tax, the B&O tax applies to gross revenue, not net profit, which means you pay it even if your business is not profitable.

Nevada has no state income tax but imposes a commerce tax on businesses with Nevada gross revenue exceeding $4 million per year. The rate varies by industry from 0.051 percent to 0.331 percent.

States With High LLC Tax Burdens

Several states impose particularly high tax burdens on LLCs. California is widely considered the most expensive state for LLCs. In addition to the state income tax (rates ranging from 1 to 13.3 percent), California imposes an $800 annual franchise tax on all LLCs, regardless of income. This tax is due even if your LLC earns $0 in revenue. On top of that, California charges an additional LLC fee based on total income: $900 for income between $250,000 and $499,999, $2,500 for $500,000 to $999,999, $6,000 for $1 million to $4,999,999, and $11,790 for $5 million or more.

New York adds its own complexity. The state income tax rate ranges from 4 to 10.9 percent. New York City imposes an additional unincorporated business tax of 4 percent on net income over $100,000 for LLCs operating in the city. And the publication requirement (mandatory for all New York LLCs) can cost $300 to $1,500 depending on the county where you file.

Massachusetts charges a $500 annual report fee for LLCs, one of the highest in the country. Combined with a flat 5 percent state income tax on most income, Massachusetts is one of the more expensive states for LLC maintenance.

New Jersey imposes a corporate business tax on LLCs that elect corporate taxation, with rates ranging from 6.5 to 11.5 percent depending on income. LLCs taxed as partnerships or sole proprietorships pay the individual income tax rate of 1.4 to 10.75 percent.

States With Low LLC Tax Burdens

On the opposite end of the spectrum, several states offer very low tax burdens for LLCs. Wyoming has no state income tax, no franchise tax, no gross receipts tax, and one of the lowest annual report fees in the country ($60 per year or 0.02 percent of in-state assets, whichever is greater). Wyoming also offers strong privacy protections — member names are not required on formation documents.

South Dakota mirrors Wyoming's approach with no state income tax, no franchise tax, no corporate tax, and a minimal annual report fee. It is one of the cheapest states in which to maintain an LLC.

Montana has no sales tax (unique among states), and while it does have a state income tax (1 to 6.75 percent), the absence of sales tax makes it attractive for retail and e-commerce businesses. The annual report fee is $20.

Alaska has no state income tax and no state sales tax (though some municipalities impose local sales taxes). The biennial report fee is $100.

Common State Tax Types

Beyond income tax, here are the most common state-level taxes that affect LLCs. Franchise taxes are imposed by about a dozen states (including California, Delaware, Illinois, Texas, and Tennessee). The name is misleading — a franchise tax is not related to business franchises. It is a privilege tax imposed for the right to do business in the state. Rates and calculations vary widely — Delaware's franchise tax for LLCs is a flat $300 per year, while California's is $800 per year plus an income-based fee.

Sales taxes apply to LLCs that sell taxable goods or services. Currently, 45 states plus DC impose a sales tax, with rates ranging from 2.9 percent (Colorado) to 7.25 percent (California). Combined with local sales taxes, the total rate can exceed 10 percent in some jurisdictions. Sales tax is collected from customers, not paid by the LLC, but the LLC is responsible for collecting, reporting, and remitting it.

Gross receipts taxes apply to total revenue rather than net profit. Washington's B&O tax and Ohio's Commercial Activity Tax (CAT) are the most prominent examples. Gross receipts taxes can be particularly burdensome for high-revenue, low-margin businesses because you pay tax on revenue even if your business is not profitable.

Employment taxes include state unemployment insurance (SUTA) and workers compensation. Every state requires employers to pay into the unemployment insurance system, and nearly every state requires workers compensation insurance for employees. Rates vary by state, industry, and claims history.

Choosing the Right State for Your LLC

For most small business owners, the right state is the state where you live and operate. Forming in a tax-friendly state like Wyoming or Delaware may seem attractive, but if you physically operate in California, you will still need to register as a foreign LLC in California and pay all of California's taxes and fees — plus the fees in your formation state. You end up paying more, not less.

Forming in a different state than where you operate only makes sense in specific situations: you run a purely online business with no physical presence in any particular state, you have significant intellectual property or assets you want to protect under a state's favorable laws, or you plan to raise institutional investment (some investors prefer Delaware LLCs because of the well-established body of case law).

For everyone else, form in your home state, understand your state's tax obligations, and plan accordingly. FormifyAI's state comparison tool helps you understand the total tax and fee burden for your LLC in any state, including all formation costs, annual fees, and state-specific taxes.