Oklahoma Franchise Tax: Everything You Need to Know
It is mandatory for all for-profit corporations, including S-corporations, partnerships and LLC entities organized, and maintained in Oklahoma.6 min read
2. Differences Between the Old and New Taxes
3. Liability for Filing Return
4. Time for Filing and Payment Information
5. Steps to Franchise Tax Return Filing
6. How Is Franchise Tax Calculated?
7. When Do Franchise Tax Returns Become Delinquent?
8. What Are the Penalties For Paying Franchise Tax Late?
9. Changing Your Filing Date
10. Frequently Asked Franchise Tax Questions
The Oklahoma franchise tax is mandatory for all for-profit corporations, including S-corporations, partnerships, and limited liability companies, organized and maintained in Oklahoma. Reinstatement of the franchise tax in 2014, followed a moratorium and enactment of a “business activity tax” in 2010. The new franchise tax rule limits taxpayers' annual obligation to a maximum of $20,000 each year.
Who Must Pay the Franchise Tax?
When the Oklahoma business activity tax was still active, it applied to both corporate and non-corporate business entities. The reinstituted Oklahoma franchise tax, on the other hand, only applies to corporations that were formed or do business in the state.
Some entities that were once subject to the business activity tax are exempt from the franchise tax. Exempt entities include limited partnerships and limited liability companies (LLC). Corporations that were converted to LLCs before June 30, 2014, are also exempt from this tax.
Foreign corporations, or businesses that were not formed in Oklahoma but operate in the state, must pay a $100 registered agent fee.
Differences Between the Old and New Taxes
The new Oklahoma franchise tax, which was instituted in 2014, is very similar to the old pre-moratorium franchise tax. For example, both the old and new franchise tax included a maximum annual payment of $200,000.
Because the two taxes were so similar, business entities formed before the moratorium was put in place will likely understand how to correctly file the new tax. On the other hand, businesses formed after the moratorium may have been taken by surprise by the reinstatement of the franchise tax and should be very careful about filing and paying this tax.
Liability for Filing Return
In order for a business to be registered in Oklahoma, it must report its income to the state's tax commission and the IRS. Corporations and other for-profit businesses organized in the state are subject to the rules of taxation. While the type of business structure elected makes a difference in reporting and filing requirements at the federal level, all business entities are subject to a single franchise tax rule in the state.
If a business has filed its articles of incorporation or articles of organization and has been registered with the Secretary of State, it is subject to taxation. Sole proprietorships are the exception to this rule, as they are subject to the same rules of individual tax filers with a home business. The Oklahoma Secretary of State website offers information about business registration and licensing.
Business entities, like joint-stock companies, trusts, and associations, that are registered in another state, district, territory, or foreign country are responsible for filing state franchise tax if operating in Oklahoma unless they are exempt by statute. Visit the Oklahoma State Legislature website for more information about the state's tax laws.
Time for Filing and Payment Information
The Oklahoma franchise tax is due by July 1st each year. Registrants can change their entity's tax filing date to the same schedule of filing as their corporate income and franchise taxes. Income reports and tax payment must be received by the fifteenth (15) day of the third month from the end of the corporation's income tax year. Payments made after the scheduled deadline will be subject to a ten percent penalty and 1.25 percent interest per month until full payment is made.
If a company's charter or other structural instrument is suspended, the state imposes a reinstatement fee of $15.00. Extensions are granted based on tentative tax returns and remittance of the estimated tax due. The Oklahoma Tax Commission does not waive penalties or interest on remittances made post-deadline. All franchise tax return documents must be legible for microfilming record.
Steps to Franchise Tax Return Filing
The steps to filing an Oklahoma Franchise Tax Return involve a line-item reporting of the business's annual return, and balance sheet income. These are the steps business owners must take in order to file their franchise tax return:
- Prepare and file your balance sheet and Schedules B, C & D of your annual return. You must also disclose the value of the business's life insurance, intellectual property assets (i.e. copyrights, patents, trademarks), and franchises (note: franchise value can be amortized over a lifetime).
- Prepare and file your Oklahoma Annual Franchise Tax Return and provide the business's FEIN.
- Fill out and file Schedule A, which provides the name and contact information for the business's officers.
- File return, payment, balance sheet and schedules with the business's FEIN or EIN. You might also file your return with your social security number instead if you own a multi-owner LLC partnership and the members are filing individual income tax returns with IRS Form 1040 and Form 1065.
How Is Franchise Tax Calculated?
The franchise tax is calculated at a rate of $1.25 per $1,000 of capital employed in or apportioned to the business's outpost in Oklahoma. The franchise tax applies solely to corporations with capital of $201,000 or more. Eligible entities are required to annually remit the franchise tax. In Oklahoma, the maximum amount of franchise tax a corporation can pay is $20,000. Corporations reporting zero franchise tax liability must still file an annual return.
Foreign corporations are not obliged to pay the Oklahoma franchise tax but are still liable for the $100 registered agent fee. Franchise tax returns are due on July 1st and are recorded on the previous income tax year's balance sheet, regardless of whether an entity is a calendar-year or fiscal-year filer. A corporation that files its franchise tax return the same day as its income tax return should use the annual report from the previous year.
When Do Franchise Tax Returns Become Delinquent?
Franchise tax returns and payment filed after September 1st are considered delinquent unless the elected filing date of a corporation coincides with a fiscal-year schedule. In this case, payments are considered delinquent if no payment is received by the 15th day of the third month following the close of the corporate year.
What Are the Penalties For Paying Franchise Tax Late?
Late franchise tax payments are subject to penalties of 10 percent of the tax owed and interest accrued at the rate of 1.25 percent monthly thereafter.
Changing Your Filing Date
If you wish, you may change the franchise tax filing date for your corporation. You can change your filing date by filing Form 200-F (Request to Change Franchise Tax Filing Period) by mail or online using OkTAP, Oklahoma's online filing system, by July 1st.
After you have filed the request to change your filing period, you will not need to file this form again. The only reason you would need to file Form 200-F a second time is if you decide to change your filing period again.
Frequently Asked Franchise Tax Questions
The best way to understand the Oklahoma franchise tax is to get answers to a few frequently asked questions:
- What are the consequences of having a corporate charter revoked?
First, if you are one of the owners of your corporation, you will no longer be allowed to do business in Oklahoma. Second, you can now be held personally liable for lawsuits filed against your corporation.
- Is it possible to reduce my franchise tax?
Yes, with the proper planning, you can reduce your franchise tax, and in certain circumstances, you may be able to avoid paying this tax completely. For instance, if you're starting a new business, you may want to consider structuring as an LLC, as the franchise tax does not apply to this entity type.
- Can I avoid taxes by converting my corporation?
In some cases, you can lower your tax burden by converting your corporation to an LLC. In Oklahoma, you can file Articles of Conversion to convert your company to an LLC. However, you should be very careful about doing so because making a mistake can result in serious federal and state tax implications. Fortunately, with a "check-the-box" election, you can have your LLC federally taxed as a corporation.
- Is forming or converting to an LLC always the best choice?
No, an LLC is not the best structure for every business entity. Depending on the nature of your business, you may be required to structure as a corporation.
If you need help with the Oklahoma franchise tax or other taxes, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.