Tax and Law
The typical characteristic of state franchise tax is that it is based on net worth of total assets tax payer has, rather than the annual income which is not a base for the calculation of tax payable. But more than forty states are direct tax on different corporations, estimated partially through net income. All states have to oblige by the federal law while defining net income. But if in any case there are some adjustments, inclusions or exclusions the reason needs to be justified in accordance with the set of standard rules.
Collection criteria
Also known as proper set of codes or statute a state law determines the method for franchise tax collection. Each state issues its own set of rules a business must follow for the payment of tax through proper collection methods. Some states have made it compulsory to sum up their annual reports by a certain date. The amount of tax a company owes depends on different aspects such as its annual turn out,origin,size,and structure .etc. Regardless of the main location of the organization a state can impose tax on any franchise of that organization working within.
Purpose
The purpose of this type of tax collection is to generate revenue for the state. States having less franchise tax means income taxes are higher and states having high franchise tax shows less income tax which is also referred to as regressive taxation system.State tax is a constantly moving target as there are frequent changes in law and taxation standards.
