What Net Worth Means for Franchise and Excise Tax
Net worth for franchise and excise tax is the difference between total assets and total liabilities reported by a business entity. States use this figure, or a modified version of it, as the basis for calculating the franchise or excise tax owed by corporations, LLCs, and other legal entities.
Key Components Used in the Calculation
To calculate net worth, start with total assets such as cash, accounts receivable, inventory, and property. Subtract total liabilities, including loans, accounts payable, and accrued expenses. The resulting equity represents the business’s net worth before any tax-specific adjustments.
Steps to Calculate Net Worth for Tax Filing
First, gather the company’s balance sheet or financial statements. Second, list all assets at their book or fair value as required by the state. Third, list all liabilities in full. Fourth, subtract total liabilities from total assets to determine net worth. Some states require additional adjustments, such as adding back certain intangible assets or subtracting specific exemptions. Always refer to the specific state agency guidelines for exact requirements.
