Delaware Franchise Tax
Companies incorporated in Delaware are required by law to pay an annual franchise tax. In essence, these payments serve as "privilege fees" to maintain a company's good standing. To maintain a corporation's good status, you must submit a straightforward yearly report online naming the directors.
The Delaware Franchise Tax is not calculated using a company's income. Even businesses with no economic activity are required to submit an annual report and pay franchise taxes in order to keep their good standing.
What You Need To Know?
You won't likely owe Delaware taxes if your Delaware LLC doesn't physically conduct business there. Delaware's state income tax is included here. Even filing Delaware tax returns is not necessary for Delaware LLCs that operate outside of Delaware.
However, regardless of where their operations are, Delaware LLCs must pay the state's annual franchise tax. This holds true even if a Delaware LLC has a loss during a particular year.
What Is the Delaware Corporation Franchise Tax and the Annual Report?
In addition to paying the franchise tax, corporations are required to file an annual report with the names and addresses of all of their directors as of the filing date. Threats of perjury are made against the electronic signature on this document.
The number of shares a corporation has an impact on the Delaware franchise tax fee. The Division of Corporations refers to corporations as "minimum stock corporations" if they have 5,000 authorized shares or fewer.
Shares greater than minimum stock corporations
- The computation is complex. Please give us a call so that we can "model" the taxes owed based on the shares you disclose to us as issued in addition to the corporation's total gross assets as reported on IRS Form 1120 Schedule L.
- For corporations with more than 5,000 authorized shares, the supplemental annual report filing charge stays at $50.
- One of two procedures can be used to determine franchise tax (please note that Delaware permits you to pay the lower amount of the two):
The Authorized Shares Method
Delaware by default bases its calculation of corporate franchise taxes on the number of authorized shares of the corporation. According to the state, the following is how to determine a corporation's tax using the Authorized Shares Method:
- 5,000 shares or less: $175
- 5,001 – 10,000 shares: $250
- For every additional 10,000 shares or fraction thereof, an additional charge of $75 will be applied.
- Maximum annual tax: $180,000
Recalculation: The Assumed Par Value (Issued Shares and Assets) Method
A corporation can "recalculate" the franchise tax to save thousands of dollars and only pay the minimal $400 franchise tax if it receives a huge franchise tax bill in the thousands of dollars yet it is a small business. The formula requires the corporation to supply the total number of issued shares (including treasury shares held by the company) and total gross assets for the corporation's fiscal year ending the calendar year of the report in order to calculate the tax using this approach. $350 per million or fraction of a million is the tax rate.
If the assumed par value capital is less than $1,000,000, you divide the amount by $1,000,000, then multiply that result by $350 to determine the tax.
Non-stock/non-profit corporations are exempt from Delaware franchise tax and penalties, but they are still required to file and pay a $25 annual report fee.
Delaware LLCs do not provide the Secretary of State an annual report. They merely need to keep a registered agent in Delaware and pay their $300 annual franchise tax.