The clock is ticking…
If you are a business owner, incorporated in Delaware, you should note that all Delaware corporations are required to file their annual report and pay the state's franchise tax. This franchise tax is an annual fee that you must pay to maintain good standing as a corporation in the state. In this blog post, we'll provide an overview of the Delaware franchise tax and how to calculate it.
What is the Delaware franchise tax?
The Delaware franchise tax is an annual fee that Delaware corporations must pay to the state. The tax is due on March 1st of each year. There are two ways to calculate franchise taxes, based on either the company's authorized shares or the company’s assets. By default, the tax assessment is calculated based on the authorized shares method, but sometimes using the other method could result in a lesser tax. It makes sense to check both.
Authorized Shares Method.
The minimum tax is $175.00 for corporations using the Authorized Shares method.
• 5,000 shares or less (minimum tax) $175.00.
• 5,001 – 10,000 shares – $250.00,
• each additional 10,000 shares or portion thereof add $85.00
• maximum annual tax is $200,000.00
An example of calculating the franchise tax using the Authorized Shares Method: If the corporation has 1,000,000 authorized shares, you will pay $8,665.00 ($250.00 plus $8,415.00).
Assumed Par Value Capital Method.
The minimum tax is $400.00 for corporations using the Assumed Par Value Capital method. To use this method, the corporation is required to provide the total number of issued shares (including treasury shares) and total gross assets, as reported on the U.S. Form 1120, Schedule L. It is important to reflect the correct amount as Delaware may request verification, at its discretion. The tax rate under this method is $400.00 per million or portion of a million. 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.
What happens if you don't pay the franchise tax?
If you don't pay the franchise tax, your business could face penalties and fines. If you don't file your Delaware franchise tax by the deadline, Delaware will charge a late fee of $125. Additionally, your corporation will assessed a penalty of 1.5 percent monthly interest on the amount due. If the fees remain unpaid, eventually Delaware will revoke your company's status as a corporation in the state. This could result in legal and financial consequences for your business.
Need assistance filing your 2022 Delaware franchise tax returns, we would love to help. Please reach out to our team at info@globalparalegalnetwork.com.
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