Delaware Franchise Tax: What Is It and How Do I Pay It

Every Delaware LLC, limited partnership, and general partnership must pay $300 per year, due annually by June 1. Calling this annual tax a “franchise tax” does not mean that your company is an actual franchise business. Corporations must pay taxes at a corporate income rate, while standard LLCs, partnerships, and sole proprietorships are pass-through entities. This means the owners instead of the business itself are taxed at the state and federal level. When you file your Delaware franchise tax, an annual report must also be filed. As long as your issued shares constitute a third to half of your authorized shares, this method will save you money.

• This article focuses on businesses that are operating solely in Delaware.
• 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.
• 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%.
• In addition to the franchise tax, there is also a $100 filing fee for the annual report.
• The tax is then often calculated to the minimum payment of $400 tax plus the $50 annual report fee, for a total of $450 due per year.
• 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.

The minimum tax is due the first quarter of each accounting period and must be paid whether your startup is active, inactive, operates at a loss or files a return for a short period of less than 12 months. The minimum tax is waived on newly formed or qualified corporations filing an initial return for their first taxable year. However, any first-year net income is still subject to the 8.84 percent tax rate. The Delaware franchise tax for a corporation is slightly more complicated. A corporation with 5,001 authorized shares or more is considered a maximum stock corporation.

Delaware Franchise Tax FAQ

They may decide to start with a minimum stock structure which is 1 to 5,000 shares of stock. With this stock structure, the Delaware Corporation will pay a $225 Delaware Franchise Tax each year which includes the annual report fee. This will allow for the lowest annual fees which is sometimes beneficial for bootstrapped start-up companies. But what if you plan to bring aboard investors in the future and the need for more authorized shares is required? If the need arises, a Stock Amendment can be filed with the state for approval to increase the number of authorized shares of the Corporation. And the maximum franchise tax for all corporations using either method is $200,000.

• This means that you’re likely to need to pay taxes in those states.
• Your authorized share number is the maximum number of shares your corporation could sell based on your corporate bylaws or charter.
• A corporation with 5,001 authorized shares or more is considered a maximum stock corporation.
• The annual Franchise Tax is imposed by the State of Delaware and varies with the size of your business.

Eisner Advisory Group LLC and its subsidiary entities are not licensed CPA firms. 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 https://quickbooks-payroll.org/ are professional registered agents available for hire; prices and levels of service vary. As discussed above, the tax on 20 million of authorized shares is $170,165 ($250.00 plus $169,915.00[$85.00 x 1999]). This is not the same as your Delaware annual report and will not mention internal company information, such as director or officer details.

The Assumed Par Value Capital method: an example

For Delaware corporations, franchise taxes are due March 1st of every year for the previous calendar year. A company must pay its taxes by filing an annual report with the Secretary of State of the State of Delaware. The online form will also calculate the correct franchise tax for you. The online form defaults to the Authorized Share Method, but if you fill in gross assets it will use the Assumed Par Value method.

• Delaware also has no personal property tax or value-added taxes.
• The late fee is $125.00 and a 1.5 percent monthly interest afterward.
• LLCs may choose to be treated as an S corporation for tax purposes.

If you’re interested in incorporating your business in Delaware or need to pay your Delaware franchise tax, consider posting a job to receive free custom quotes from one of UpCounsel’s top 5% of How Do I Compute the Delaware Franchise Tax? attorneys. This article focuses on businesses that are operating solely in Delaware. If your business is operating in multiple states, your business may have “nexus” with those other states.

Who has to pay the franchise tax?

The franchise tax notice you receive from Delaware probably uses the authorized shares method. But you can often save a lot of money using the assumed par value calculation. Different states calculate the tax you owe using different methods. Many startups are incorporated in Delaware,[1] which has a pretty unique way of both calculating the amount of franchise tax you owe and of conveying that information to you. The franchise tax rate is $400 per million or portion of a million. When using the ‘Assumed Par Value Method,” you must provide numbers for all issued shares (including treasury shares) AND total gross assets.

If you pay your Delaware franchise tax late, you’ll be charged a late fee. The late fee is $125.00 and a 1.5 percent monthly interest afterward. Along with your business’s annual Delaware franchise tax, your business is required to submit a Delaware annual report. Both the Delaware annual report and the Delaware franchise tax are due by March 1 each year.

Business that are formed out of state but are registered to do business in Delaware must pay a $125 registration fee. Delaware franchise tax is a tax charged by the state of Delaware for the right to own a Delaware company. The tax is required to maintain the company’s good standing in Delaware. “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.

In addition to corporations, Delaware limited liability companies (LLCs), general partnerships, limited partnerships (LPs) and limited liability partnerships (LLPs) must also pay franchise taxes. The franchise tax for an LLC or LP in Delaware is a flat annual rate of $300. A non-stock, nonprofit company will not pay the standard yearly fees but must still file and submit reports on their activity each year with no other requirements put upon them by law.

Make sure to use the recalculate button on the Delaware Franchise Tax website

The actual value of your business as estimated by the State of Delaware. We appreciate you taking the time to provide feedback on Cooley GO. While we cannot respond to every inquiry, we may reach out to seek further clarification on any suggestions or technical issues you’ve submitted. We may monetize some of our links through affiliate advertising. At any moment, executives or team members may own public or private stock in any of the third party companies we mention.