Colorado Has No Franchise Tax — What That Means for Your LLC

Colorado does not impose a franchise tax, privilege tax, or any entity-level fee on LLCs beyond the $25 annual Periodic Report. This is one of Colorado's biggest advantages for LLC owners and a key reason the state is popular for business formation. For the complete tax picture, see our Colorado LLC tax guide. For formation details, see how to form a Colorado LLC.

What Is a Franchise Tax?

A franchise tax is a fee states charge for the "privilege" of doing business as a legal entity in that state. It's separate from income tax — you pay it regardless of whether your business makes money. Many states impose franchise taxes on LLCs:

• California: $800 minimum annual franchise tax (regardless of income)
• Texas: Margins tax (0.375%-0.75% of revenue above $2.47M threshold)
• Tennessee: $300 minimum combined franchise and excise tax
• Delaware: $300 annual tax for LLCs
• Illinois: No franchise tax for LLCs (repealed 2024)

Colorado's Position: Zero Entity-Level Tax

Colorado charges no franchise tax, no privilege tax, no minimum entity fee, and no gross receipts tax. The only mandatory annual payment for a Colorado LLC is:

• $25 Periodic Report — filed annually through sos.colorado.gov during your anniversary month

That's it. No additional entity-level charges.

How This Saves Colorado LLC Owners Money

Year-over-year comparison (LLC that breaks even or shows a small profit):

For an LLC that's just starting, not yet profitable, or earning modest amounts, Colorado's structure means you're paying $25/year to maintain your entity instead of $800+ in states with franchise taxes.

Why This Matters for Specific Situations

Startup LLCs with no revenue: In California, you owe $800 even if you earn nothing. In Colorado, you owe $25.

Real estate holding LLCs: Investors who use separate LLCs per property benefit enormously. Five properties = five LLCs = $125/year in Colorado vs. $4,000/year in California.

Seasonal businesses: Colorado ski operations, summer tourism, and construction companies may have months of zero revenue. Colorado doesn't penalize entity existence during off-season — there's no minimum payment beyond $25.

Dormant LLCs: If you maintain an LLC for asset protection but it's not actively operating, Colorado costs just $25/year to keep alive. In Tennessee that same dormant LLC costs $300/year.

What Colorado Does Charge

While there's no franchise tax, Colorado does have:

• 4.4% flat income tax — On LLC pass-through income (only when profitable)
• Sales tax — If selling taxable goods/services (varies by location; 2.9% state + local)
• Unemployment insurance — If you have employees
• Workers' compensation — If you have employees (mandatory in Colorado)
• $25 Periodic Report — Annual filing fee to maintain active status

None of these are franchise taxes — they're either triggered by activity (sales, employees, profit) or a minimal filing fee ($25).

FAQ

Does Colorado have any kind of minimum business tax?

No. If your LLC earns no profit, you owe no income tax and no entity-level tax. The only cost is the $25 annual Periodic Report. Colorado is one of the most affordable states for maintaining an LLC that isn't yet profitable.

Did Colorado ever have a franchise tax?

No. Colorado has never imposed a franchise tax on LLCs. The state has historically maintained a business-friendly fee structure.

Could this change in the future?

Any new tax would require legislative action and, under Colorado's TABOR amendment (Taxpayer's Bill of Rights), any tax increase must be approved by voters. This constitutional protection makes it unlikely that a new franchise tax could be imposed without voter approval.

Is the $25 Periodic Report the same as a franchise tax?

No. The Periodic Report is a filing fee — you're paying for the administrative processing of updating your LLC's information with the Secretary of State. A franchise tax is a tax on the privilege of existing as a business entity. The $25 Periodic Report is not a tax and is not based on revenue, assets, or income.

Should I form in Colorado instead of my home state to avoid franchise tax?

Only if you have a legitimate business reason to form in Colorado. If you operate in a franchise-tax state (like California), you'll still owe that state's franchise tax as a foreign LLC doing business there, plus Colorado's $25 report. Forming in Colorado only avoids franchise tax if you actually operate in Colorado and not in the other state.