Delaware Franchise Tax- Instructions for Calculating

Let’s imagine a Delaware-incorporated company reported total gross assets of $1,000,000 on their federal taxes this year. Delaware Franchise Tax is based on a Corporation’s total Authorized Shares. Filing an annual report and paying franchise tax is also required to maintain a company’s good standing in Delaware. Not filing and paying means your company cannot obtain a good standing certificate and Delaware will declare your company void.

Finally, note that there is a separate rule for large, publicly-traded corporations, which have a fixed annual franchise tax of $250,000. This method allows the company to pay the lower of two calculated tax amounts. In some cases, it may be better to calculate the franchise tax with the assumed par value capital method. Many Delaware corporation owners form companies and authorize huge numbers of shares (millions, in some cases).

For corporations using the Assumed Par Value Capital Method, the minimum franchise tax is $350 and the maximum tax is $200,000; however, for the 2018 tax year, the minimum will increase to $400. Franchise taxes are generally due in arrears for the prior calendar year. If you are a startup that has chosen Delaware as its state of incorporation, you are likely aware that you are subject to Delaware franchise tax.

The new number will very likely be lower than the original number you saw. Depending on the size and equity status of your business, the resulting tax amounts can differ wildly between the two methods. The State of Delaware has a franchise tax calculator on their website to make it easy to estimate and compare.

What are Delaware franchise taxes?

A corporation generally has one year from the date of filing to amend a Delaware Franchise Tax return and claim a refund. A refund might be available if the Assumed Par Value Capital Method was not considered. The above calculations must be done for each class of stock that is authorized by a corporation.

Limited partnerships (LPs) also owe franchise tax by June 1 of each year. If the tax is not paid by this date, Delaware imposes a $200 penalty and a 1.5 percent interest fee each month. Delaware corporations, whether foreign or domestic, are required to pay an annual Franchise Tax. If a company owes more than $5,000 in franchise taxes, then it must make quarterly tax payments. Those are due at the end of the second month following each quarter (i.e 40% due on June 1, 20% due on September 1, 20% due on December 1, and remainder due on March 1), and any positive balance goes towards next year. Failure to file by the deadlines will cause a company to fall out of good standing with the state, which can complicate, delay or even prevent a range of possible transactions, including fundraising transactions.

Corporate Annual Report

In addition to paying the Franchise Tax, Delaware requires every corporation to have and maintain a registered agent in the State. This is a person or a representative that is physically located in Delaware. If a company doesn’t have a physical presence in Delaware, there are professional registered agents available for hire; prices and levels of service vary. Each year the State of Delaware calculates your corporation’s franchise tax obligation based on the Authorized Share Method. A franchise tax, sometimes called a privilege tax, is a fee you pay for the privilege of doing business in a certain state. The first is the use of virtual mailboxes, which Delaware does not accept because they require a physical address to know where your company is actually operating from.

The first option illustrates the default method used by the state to calculate corporate franchise taxes. Commonly referred to as the annual shares method, it is based on the number of authorized shares issued by a company. Authorizing excessive shares of stock can result in a higher annual franchise tax liability. A large widely held public company might have difficulty reducing their authorized and/or issued shares but a start-up technology or life sciences company may have more flexibility. Ideally, Delaware Franchise Tax liability should be quantified prior to incorporating in the state and prior to any new shares being authorized or issued.

• If the tax is not paid by this date, Delaware imposes a $200 penalty, as well as a 1.5 percent interest fee each month.
• The example cited below is for a corporation having 1,000,000 shares of stock with a par value of $1.00 and 250,000 shares of stock with a par value of $5.00 , gross assets of $1,000,000.00 and issued shares totaling 485,000.
• The par value used to compute the tax is the greater of the “assumed par value” or the actual par value listed in the certificate of incorporation.
• The minimum tax when using this method is $175, and the maximum tax is $200,000.

This method is a bit more complicated, because it involves calculating your business’s assumed par value—i.e. The actual value of your business as estimated by the State of Delaware. If your due date falls on a Saturday, Sunday, or legal holiday, you may file your return on or before the next business day. A penalty of $200 is assessed for failure to file the Annual Franchise Tax report by March 1st, plus interest of 1.5% each month on any unpaid tax and outstanding penalty fee. This website is using a security service to protect itself from online attacks.

Additional support can be offered using the Delaware franchise tax calculator. « EisnerAmper » is the brand name under which EisnerAmper LLP and Eisner Advisory Group LLC and its subsidiary entities provide professional services. EisnerAmper LLP is a licensed independent CPA firm that provides attest services to its clients, and Eisner Advisory Group LLC and its subsidiary entities provide tax and business consulting services to their clients. Eisner Advisory Group LLC and its subsidiary entities are not licensed CPA firms. Incorporating in a state usually creates income tax nexus with the jurisdiction. However, in addition to incorporation, a corporation must actually be “doing business” in Delaware to be subject to the state income tax.

What about the annual report?

The Delaware Annual Franchise Tax assessment is based on the authorized shares of your company. The Assumed Par Value Capital Method in the above example results in a much lower tax ($26,800 vs. $170,165). Delaware would automatically show the higher tax due on their website using the authorized shares method. It is up to the taxpayer to select the Assumed Par Value Capital Method if it results in a lower tax. When using the ‘Assumed Par Value Method, » you must provide numbers for all issued shares (including treasury shares) AND total gross assets. If you’re trying to figure out if you owe Delaware franchise tax, Bench can help.

The online form defaults to the Authorized Share Method, but if you fill in gross assets it will use the Assumed Par Value method. To use this method, you must provide figures for all issued and outstanding shares and total gross assets in the spaces provided in your annual franchise tax report. Total gross assets shall be those « total assets » reported on the US Form 1120, Schedule L (Federal Return) relative to the corporation’s fiscal year ending the calendar year of the report. The tax rate under this method is $350 (to be increased to $400 effective for the 2018 tax year) per million or portion of a million. If the assumed par value capital is less than $1 million, the tax is calculated by dividing the assumed par value capital by $1 million then multiplying that result by $350.

What other taxes do Delaware corporations need to file/pay?

We set startups up for fundrising success, and know how to work with the top VCs. Harvard Business Services, Inc. guarantees your annual Delaware Registered Agent Fee will remain fixed at $50 per company, per year, for the life of your company. Information on this page relates to a tax year that began on or after January 1, 2022, and before January 1, 2023. Maximise reach and impact with detailed reports on content marketing and customer engagement. Track your performance across channels with an easy to use SMM software.

The annual report must be filed online, and there is a filing fee of $50. The report must be filed by an authorized officer of the corporation, typically the president, secretary, or treasurer (or by the incorporator if the board has not yet been formed). Authorized Share Method

5000 shares or less, pay the minimum $175 tax. For each additional 10,000 shares, add $75 to the tax total, with a maximum franchise tax of $180,000. So if your Delaware corporation has a million authorized shares, your annual franchise tax will be approximately $7,500.

Delaware Franchise Tax Calculator

If you need help with Delaware franchise tax for your LLC or other company, you can post your legal need on UpCounsel’s marketplace. 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. If you own a business based in Delaware, then you are subject to the Delaware Franchise Tax, which needs to be paid annually. This applies to whether you are operating a limited liability company (LLC), nonprofit, corporation or partnership.

We Know Delaware®

As a last resort, the CEO can list their personal address, but this is not ideal for everyone. The second reason is bad bank accounts, such as using the wrong bank account on tax filings or not informing your accountant of changes in bank accounts, which can delay tax filings and result in late fees. Most VC backed startups are Delaware C-Corps, which means that most VC-backed startups DO need to file. Many people hear the term “franchise tax” and assume it’s not applicable to them. The franchise in franchise tax refers to the State’s authorization for a company to incorporate in the state or do business there. If taxes and bookkeeping are proving to be a hassle, consider looking into our complete Accounting and Bookkeeping service.

While the typical franchise tax is based on a corporation’s net worth or capital, the tax can also be based on other criteria such as income or gross receipts. Assume a Delaware corporation has 20 million of authorized shares with a par value of .001, $50,000,000 of total gross assets and 15,000,000 of issued shares. The minimum franchise tax is $175.00 for corporations using the Authorized Shares Method and $400.00 for corporations using the Assumed Par Value Capital Method. All corporations using either method will have a maximum tax of $200,000.00 unless it has been identified as a Large Corporate Filer, then the tax will be $250,000.00. The Delaware annual report and franchise tax payment are both due by March 1. Your notification of annual report and franchise tax due is sent to a corporation’s registered agent in December or January of each year.

We provide small businesses with a tax filing and bookkeeping solution. Our all-star team does your monthly bookkeeping for you and sends your financials to trusted tax professionals for a stress free filing experience. Most startups use the Assumed Par Value Capital Method to calculate their franchise How To Start A Bookkeeping Business 2023 Guide tax bill. This method almost always results in a lower tax for our customers because startups generally have few assets but authorize millions of shares. Most general business corporations are mandated to e-file the extension. The minimum tax for companies using the Authorized Shares Method is $175.

When considering the last 2 bullets above, an LLC or LLP that is treated as a partnership for federal income tax purposes will be treated as a partnership for New York State tax purposes. Companies can file the Annual Franchise Tax Report on their own, or partner with a registered agent, attorney, or accountant to do so. If you choose file it on your own, (or if you want insight into the process), start with the Delaware tax calculator. Then move on to the DE Annual Report and Tax Instructions page to file your Annual Report and pay your taxes. As we’ve previously discussed, forming a Delaware corporation for a cannabis startup may be a good idea. One issue that Delaware corporations need to be aware of is how that state calculates its franchise tax.

The contents of this page may be considered attorney advertising under certain rules of professional conduct. The Delaware franchise tax due date varies, based on a few different factors. Taxpayers owing $5,000.00 or more must pay estimated taxes in quarterly installments with 40% due June 1, 20% due by September 1, 20% due by December 1, and the remainder due March 1. Let’s also imagine it has authorized and issued 100,000 shares at a par value of $2.00 each, and 100,000 shares at par value of $10.00 each. Let’s also assume the number of shares issued and authorized is the same for simplicity’s sake.