The Delaware Franchise Tax is a fee levied on most business entities incorporated in the state to maintain their good standing. This tax is due annually and is a payment for the privilege of holding a Delaware charter. Navigating the requirements involves understanding who must pay, gathering corporate information, calculating the amount owed, and submitting the payment and associated reports by the deadline.
Understanding Delaware Franchise Tax and Its Applicability
The franchise tax calculation is not based on profits or business transactions; a corporation must pay it even if it conducts no business whatsoever. This applies to all domestic corporations chartered in the state, making it a broad-based requirement. The obligation extends to most corporations formed under Delaware law.1Justia. 8 Delaware Code § 501 (2024) – Corporations subject to and exempt from franchise tax.
Limited Liability Companies (LLCs), Limited Partnerships (LPs), and General Partnerships (GPs) also have an annual tax obligation, though it is a flat fee.2Justia. 6 Delaware Code § 18-1107 (2024) – Taxation of limited liability companies and registered series. Certain non-profit corporations are not required to pay the franchise tax but still must file an Annual Report and pay a smaller filing fee.
Gathering Information for Your Franchise Tax and Annual Report
Before calculating or paying the franchise tax, you must gather information for the mandatory Annual Report filed with the Delaware Division of Corporations. This information is entered into the online report and includes corporate, leadership, and financial details.
You will need the following:
- Your seven-digit Delaware File Number and federal Employer Identification Number (EIN).
- The corporation’s principal place of business address, which cannot be the address of your registered agent.
- The names and full mailing addresses for all directors on the company’s board.
- The name and address of at least one officer.
- The total number of authorized shares for the basic calculation method.
- The total number of issued shares (including treasury stock) and the company’s total gross assets for the alternative method. This asset figure must match the “total assets” on Schedule L of your U.S. Form 1120.3Justia. 8 Delaware Code § 502 (2024) – Annual franchise tax report; contents; failure to file and pay tax; duties of Secretary of State.
Methods for Calculating Your Delaware Franchise Tax
Delaware provides two methods for corporations to calculate their annual franchise tax: the Authorized Shares Method and the Assumed Par Value Capital Method. Companies are permitted to calculate the tax using both formulas and pay the lower of the two resulting amounts. This choice allows businesses, particularly new ventures with many authorized but unissued shares, to potentially reduce their liability. The maximum tax under either method is $200,000.4Justia. 8 Delaware Code § 503 (2024) – Rates and computation of franchise tax.
The Authorized Shares Method is the more straightforward option. For corporations with 5,000 or fewer authorized shares, the tax is $175. For those with 5,001 to 10,000 shares, the tax is $250. Beyond 10,000 shares, the tax is $250 plus an additional $85 for each block of 10,000 shares or portion thereof. The minimum tax using this method is $175.
The Assumed Par Value Capital Method is more complex and requires figures for gross assets and issued shares. The calculation involves dividing total gross assets by the total number of issued shares to determine an “assumed par.” This value is then used in a multi-step formula to arrive at an “assumed par value capital.” The tax is calculated at a rate of $400 for each $1,000,000 of assumed par value capital, with a minimum tax of $400.
How to File Your Delaware Annual Report and Pay Franchise Tax
Domestic corporations must file the Annual Report and pay tax electronically through the Division of Corporations’ online portal. To begin the process, navigate to the state’s website and enter your seven-digit Delaware File Number to access your company’s record.
The online system will guide you through entering the required information for the Annual Report, including director and officer details, and the financial data needed for the tax calculation. The portal accepts payments via major credit cards or electronic check (ACH), though payment by ACH is required for transactions over $5,000. You should receive an electronic confirmation once the report and payment have been successfully processed, completing your annual obligation.
Key Deadlines and Consequences of Non-Compliance
For domestic corporations, the deadline to file the Annual Report and pay the franchise tax is March 1st each year, and no extensions are granted. Other entity types have different due dates; for instance, LLCs and LPs must pay their flat $300 annual tax by June 1st.5Justia. 6 Delaware Code § 17-1109 (2024) – Annual tax of domestic limited partnership and foreign limited partnership and registered series. Corporations with a prior year’s tax liability of $5,000 or more are required to make quarterly estimated payments.6Justia. 8 Delaware Code § 504 (2024) – Collection and disposition of tax; tentative return and tax; penalty interest; investigation of annual franchise tax report; notice of additional tax due.
Failure to file and pay by the March 1st deadline results in a $200 late fee for the overdue Annual Report and interest on the unpaid tax at 1.5% per month. A delinquent status will also prevent the corporation from obtaining a Certificate of Good Standing, which can impede business transactions like securing loans or entering into contracts.
Prolonged non-compliance has severe consequences. A corporation that fails to file its report and pay taxes for more than one year will have its corporate charter declared void by the state. This action dissolves the company, stripping it of its legal rights and protections as a Delaware corporation.7Justia. 8 Delaware Code § 510 (2024) – Failure to pay tax or file a complete annual report for 1 year; charter void; extension of time.