Franchise Tax

A franchise tax is a government levy (tax) charged by some U.S. states to certain business entities such as corporations and partnerships that are incorporated or chartered within that state. The tax is often based on the net worth of or capital held by the entity, rather than on income. This tax is considered a cost of doing business in those states.

It's worth noting that despite its name, the franchise tax is not solely imposed on franchises. It's called a franchise tax because it allows the business the privilege (or "franchise") to conduct business in that state.

In the context of real estate financial modeling, if a property is owned by a corporation or other business entity subject to a franchise tax, this tax would be part of the entity's operating expenses. Like all expenses, it would reduce the net operating income and cash flow from the property.

The specifics of franchise taxes -- including which entities are subject to the tax, how the tax is calculated, and how much the tax is -- vary by state. In some states, like Delaware and New York, franchise taxes can be significant, while other states do not have a franchise tax at all. Businesses should consult with a tax professional to understand how these taxes apply to them.