Franchise Tax in Minnesota: The Ultimate Guide



If you are self-employed or work for yourself, you do not need to file an income tax return. If another person employs you, you must report your earnings on Form W-2. You can find out whether you need to file here.

S Corporation

An S Corporation is a type of small business entity where shares of stock are sold rather than being owned individually. This form of ownership allows owners to limit personal liability and file tax returns as individuals. However, it does not allow the corporation to deduct certain business expenses such as rent, utilities, insurance premiums, etc. Instead, those costs must be paid out of operating income.

Shareholders pay taxes and fees based on the amount of profit earned by the corporation. If there is no profit, the shareholder pays nothing.

There is an option to pass losses through to the individual shareholders. For example, if you lose $10,000 in one year, your loss is passed through to each shareholder proportionally. When you make money, you keep the entire profit.


A partnership is a legal entity formed under state law for the purpose of carrying on some particular activity. A partnership is usually formed for profit, although it does not necessarily have to be profitable; partnerships are used for many different types of activities, including farming, real estate development, construction, manufacturing, transportation, finance, insurance, consulting, accounting, and even art.

The partners in a partnership are called “partners.” Each partner owns a percentage interest in the profits and losses of the partnership. This ownership interest is known as the “partner’s share,” or sometimes just the “share.” For example, if a partnership owned a building worth $100,000, and there were four partners, each partner’s share would be one-fourth ($25,000). If the partnership lost money, each partner would lose one-quarter of his/her investment ($12,500), because he/she would owe one-quarter of the loss to the other three partners.

Each partner in a partnership reports his/her share of income and deductions on IRS Form 1065, Partnership Return of Income. When you’re preparing your own tax returns, you’ll use Form 1065-B, Part II, to prepare your partnership return.

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Create your LLC Corporation with just 3 easy steps


Estate or trust (fiduciary)

Filing Form M2 is simple if you are filing as either a trustee or a fiducial. However, there are different filing deadlines depending upon what type of entity you are filing for. Check out the IRS’s guide here.

What kind of business is required to pay franchise taxes?

Minnesota imposes a corporate franchise tax on corporations doing business in the state. This includes corporations incorporated under Minnesota law, foreign corporations doing business in Minnesota, and domestic partnerships doing business in Minnesota. However, individuals who own a corporation are not required to pay a franchise tax on the corporation unless it engages in one of the following activities:

• selling tangible personal property;

• engaging in insurance business;

• providing public utility service;

• owning or operating a cemetery; or

• owning or operating an amusement park.

The amount of the tax varies depending on whether the corporation is classified as a “large,” “medium,” or “small” taxpayer. For example, a large taxpayer pays $10 per $1 million of taxable income, while a small taxpayer pays $2 per $1 million of income.

Franchise tax for nonprofit organizations

The Franchise Tax Board recently announced it will begin collecting franchise taxes on income earned by nonprofits beginning Jan. 1, 2020. Nonprofits are subject to franchise taxes under California law if they meet one of three criteria: They receive at least 50% of their annual net earnings from activities conducted within the state; they conduct substantial operations outside the state; or they qualify as a “nonprofit corporation.” In addition to paying franchise tax, nonprofits must file annual reports with the board and pay quarterly fees based on the amount of taxable income generated during the previous quarter.

Gas & Electric Franchise Fee

The City of San Jose collects $1.50 per month per customer for electricity and $0.30 per month per customer for natural gas. This is called the Gas and Electric Franchise Fee.

What Franchise Fee?

A franchise fee is a set amount charged by cities to companies that want to operate within their boundaries. This fee is usually based on the number of employees working for the company, how much revenue it brings into the city, and the size of the building where the company operates. In some cases, the fee is based on the square footage of the building.

The fee varies widely from city to city, depending on what the city wants to accomplish. Some cities use the money to fund public works projects; others want to build the local economy. Whatever the reason, the fee provides a source of income for the city.

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Starting July 1st, 2019, residential utility customers will pay a monthly fee of $5 per account, per month, on both their gas and electricity bills. This new fee will apply across all residential accounts, including those with commercial franchises.

The fee applies to all residential accounts, regardless of whether they are billed directly by PG&E or through a third-party billing agent.

This fee does not include taxes or surcharges.

Residential Franchise Fee

The commercial franchise fee is calculated differently based on whether or not an organization is classified as residential or as commercial. For example, residential customers are charged $0.00 per month while commercial customers are charged $5.00 per month. There is a minimum monthly fee for all commercial accounts. The commercial franchise fee is due every month regardless of usage.

Commercial Franchise Fees?

Utility franchise fees are an alternative form of local government revenue. Municipalities must collect some type of tax on utility bills in most states. These fees vary widely depending on where you live. Some cities impose a flat fee per customer, while others require a percentage of monthly bill amounts.

The best way to understand how franchise fees work is to look at what happens when a city decides to raise property taxes. If a city raises property taxes, it typically increases the amount of money collected from each resident. This additional money goes into the general fund, which is used to pay for things like police officers, fire trucks, street repairs, etc.

A municipality can choose to use part of the increased tax revenue to pay off bonds, build infrastructure, or simply keep the extra cash in the general fund.

If a city chooses to spend the extra income on something else, such as paying down debt, utilities often pass along the savings to customers.

How do franchise fees work?

In many cases, utilities don’t actually collect franchise fees directly from consumers. Instead, they’re charged upfront by state regulators. Once approved, the fees are passed onto customers.

For example, in Indiana, the Public Service Commission collects franchise fees from utilities. When utilities submit rates to the commission, they include a portion of those fees in the base cost of electricity. Customers see the total price of electricity increase slightly, but the actual amount paid by consumers doesn’t change.

Which other cities collect utility franchise fees?

Minnesota has 66 cities that collect electric franchise fees and 51 cities that collect gas franchise fees, according to data collected by the National Association of Regulatory Utility Commissioners. These fees are charged to customers based on how much electricity or natural gas they use. Utilities typically charge franchise fees for each customer connection, whether it’s a meter reading or a new home installation.

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The fees vary depending on what type of utility you subscribe to. For example, electric utilities usually charge franchise fees every three months, while gas companies usually charge monthly. In addition, some municipalities don’t charge a fee for residential connections, while others charge a flat rate per kilowatt hour.

If you want to find out if your city charges a franchise fee, check with your local government or call your utility provider. If you’re looking for a list of cities that do not charge a franchise fee, here’s a link to the NARUC site.

What are the Pros and Cons of Franchise Fees?

Franchise fees are easy to administer because you don’t have to collect property tax payments on individual properties. You just send out invoices once per month to each franchisee. Also, franchisees pay their portion of franchise fees upfront rather than deducting it from their monthly rent payments. This makes it much easier to track how much money each franchisee owes. On the downside, franchise fees are usually lower than property taxes. In addition, franchise fees tend to increase over time, whereas property taxes remain relatively stable. If you’re considering buying a building, you might want to consider whether franchise fees make sense for your particular situation.



Frequently Asked Questions

How Income Taxes Are Calculated

Income taxes are calculated based on the income earned by an individual or a business. The amount of tax is determined by the taxable income, which is the total income less any deductions allowed for that year. Taxable income can be broken down into two parts: wages and salaries (wages) and other sources of income (other). Wages include salary, bonuses, tips, and commissions.

Do I Have to Pay Income Tax in Minnesota?

Minnesota is a state that has a lot of taxes. The state collects income tax, sales tax, and property tax. In addition, there are other taxes such as the motor vehicle excise tax (MVET), which is an annual fee on your car; the cigarette tax, which is charged at every time you buy cigarettes or tobacco products; and the liquor tax.

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