What is the Delaware Franchise Tax?
Franchise Tax is the fee imposed by the state of Delaware (a one-time state fee) for the right or privilege to own and keep a Delaware company. The tax has no bearing on income or company activity; it is simply required by the state of Delaware to maintain the good standing status of your company. Your registered agent can easily help you with the Franchise Tax Fee.
When is it due?
The due date of the Delaware Franchise Tax payment varies, depending on the company type. Corporation Franchise Tax is due by March 1 of every year. If the tax is not paid on or before March 1, the state imposes a $200 late penalty, plus a monthly interest fee of 1.5%.
Delaware LLC Franchise Tax is due by June 1 of every year. The limited partnership (LP) Franchise Tax is also due by June 1 of every year. If the tax is not paid on or before June 1, the state imposes a $200 late penalty, plus a monthly interest fee of 1.5%.
Corporations and LLCs s are taxed in arrears, meaning the tax due by each due date is for the previous calendar year. The franchise tax is due even if the business didn’t conduct any activity or lost money.
The methods of calculating Delaware Franchise Tax are detailed below. Please read on to find out how much you’ll pay.
The Franchise Tax for a Delaware LLC is a flat annual rate of $300. The Franchise Tax for a corporation is based on your corporation type and the number of authorized shares your company has. The total cost of the corporation's Delaware Franchise Tax consists of an annual report fee and the actual tax due.
A corporation with 5,000 authorized shares or less is considered a minimum stock corporation. The Delaware annual report fee is $50 and the tax is $175 for a total of $225 due per year.
A corporation with 5,001 authorized shares or more is considered a maximum stock corporation. The annual report fee is $50 and the tax would be somewhere between $200 and $200,000 per year.
Franchise Tax Calculator
Customer can easily access the franchise tax calculator at the following link: https://corp.delaware.gov/taxcalc/
How Your Franchise Tax is Estimated
Authorized Share Method
Considering the Authorized Shares Method, if you have between 1-5,000 shares or 5,001-10,000 shares, you pay a flat rate. If you have more than 10,000 shares, the Tax would be somewhere between $250 and $200,000 per year. Rates are as follows:
1 - 5,000
5,001 - 10,000
By way of illustration, a company with 5,000,000 authorized shares will owe $37,675.00; a company with 10,000,000 will owe $75,175.00; and for a company to hit the maximum tax, it will have to authorize just fewer than 24,000,000 shares. Again, this is based on authorized shares and not outstanding shares.
This is only a general Franchise Tax estimate. Additional fees may apply when filing. Franchise Tax fees cannot exceed the maximum of $200,000.
Assumed Par Value Method
This method calculates how much tax is due with a more complicated function based on how many shares are authorized, how many shares are issued, and the amount of a company’s gross assets.
The idea behind this method is that it takes a company’s par value per share times the number of shares it has authorized (i.e. the total market capitalization), rounds up to the nearest million dollars, and takes 0.04% of that as the tax.
Since most companies set par value very low in their certificates of incorporation (e.g. $0.00001), Delaware has come up with an “assumed par value,” which is the Company’s gross assets divided by all of its issued and outstanding shares.
The gross assets come from U.S. Form 1120, Schedule L tax form for the same year that the Company is filing its annual report. If the Company has not filed its taxes for that year yet, then a number from a recent balance sheet will suffice and can be amended later if necessary.
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.
If your authorized shares exceed 5,000 then it is better to use this method in order to calculate the Franchise Tax for your company. For further assistance, we recommend that you contact an accountant or a tax expert.
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