Every Delaware-based corporation must pay the Delaware Franchise tax. Delaware imposes this tax for companies hoping to maintain good standing within the state. This tax can come as a surprise to business owners but fear not. We’ll cover everything you need to know about the franchise tax.
What Is the Delaware Franchise Tax? Is It Applicable to Me?
The Delaware Franchise Tax applies to all corporations in Delaware. Whether you have financial activity during the year or not, you must file a Delaware Franchise Tax return and pay any taxes owed.
Due Date for Delaware Franchise Tax
Filing your taxes on time helps you avoid late fees. Franchise taxes and annual reports must get filed by March 1st in Delaware. Corporations will have to pay a $50 filing fee in addition to their tax payments.
Some entities do not file an Annual Report. These structures (limited partnerships, LLCs, and general partnerships) must pay $300 in taxes each year. These taxes come due on June 1st.
Late and missed payments result in a $200 penalty. Late tax payments and the penalty acre interest at the rate of 1.5% per month.
Set a budget for taxes so you don’t scramble to raise funds at the last minute. The 1.5% monthly interest rate can add up substantially if you owe thousands of dollars in taxes.
Assumed Par Value vs Authorized Share Method
Delaware looks at share counts to calculate the Franchise Tax. There are two methods to calculate the total Delaware Franchise Tax: the Authorized Shares Method and Assumed Par Value Capital Method. Delaware gives startups the flexibility to use the method that results in the lesser tax -- in most cases this will be Assumed Par Value Capital Method. Please note, the total tax will never be less than $125.00, or more than $200,000.00.
The Authorized Share Method is Delaware’s default method. This approach uses tax brackets based on share count to determine the tax payment. Corporations with 5,000 or fewer shares will pay the minimum tax. More shares push the corporation to a higher tax bracket. Delaware looks at authorized shares instead of outstanding shares. A corporation will have more authorized shares than outstanding shares. Authorized shares are shares a company can issue. Outstanding shares are shares a company has issued. Corporations use their pool of authorized shares to issue outstanding shares.
The Assumed Par Value Capital Method incorporates authorized shares, outstanding shares, and the corporation’s gross assets. You will need to know all issued shares and total gross assets. Total Gross Assets are “total assets” reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company’s fiscal year ending the calendar year of the report. For most startups, Gross Assets as of 12/31 will include: Cash, Investments (Brokerage/Money Market/Treasury Accounts), Fixed Assets (laptops, etc.), Crypto, Accounts Receivable, Inventory, Real Estate, Investments or Loans to Foreign or Domestic Subsidiaries. The tax rate under this method is $400.00 per million or portion of a million shares. If the assumed par value capital is less than $1,000,000, the tax is calculated by dividing the assumed par value capital by $1,000,000 then multiplying that result by $400.00.
How is the Delaware Franchise Tax calculated?
Find out how much you owe Delaware by using the Fondo Delaware Franchise Tax Calculator.
How can Fondo help?
We can calculate, pay and file your Delaware Franchise using the most advantageous and appropriate method for your startup tax each year. This is included in our annual TaxPass subscription. Learn more here.