In Delaware, the Franchise Tax fee is not based upon your corporation’s income, but on formulas involving the number of authorized shares, or alternatively, the value of the corporation, whichever would result in a lesser tax.
When forming your corporation, please consider the following examples and tables for the computation of the annual franchise tax.
Delaware General Corporate Law states that all active Corporations in the State of Delaware are required to file an Annual Report and to pay a Franchise Tax annually on or Before March 1st and are required to file online.
Notification of Annual Report and Franchise Taxes due are sent to all Delaware Registered Agents during the end of December and the beginning of January of each year. As your Delaware Registered Agent we scan and E-mail the Annual Franchise Tax Report to your supplied e-mail address, then mail the original to the contact address we have on file.
The Annual Report filing fee for all domestic corporations is $50 plus taxes due upon filing of the Annual Report.
Failure to file the report and pay the required franchise taxes on or before March 1st will result in a penalty of $200 plus 1.5% interest per month on unpaid balances due.
Authorized Shares Method
Effective January 1st 2018, the minimum tax is currently $175 using the Authorized Shares Method. For corporations having No Par Value stock the authorized shares method will always result in the lesser tax:
- 5,000 shares or less (minimum tax) $175.
- 5,001 – 10,000 shares – $250.
- Each additional 10,000 shares or portion thereof add $85.
- Maximum Annual Franchise Tax is $200,000.
A corporation with 10,005 shares authorized pays $335 ($250 plus $85).
A corporation with 100,000 shares authorized pays $1,015 ($250 plus $765 [$85 x 9]).
Assumed Par Value Capital Method
The Delaware Franchise Tax Notice uses the Authorized Shares Method by default. However, if you have a large amount of shares with a par value, generally the Assumed Par Value Capital method may result in a considerably lower Franchise Tax. The minimum tax using the Assumed Par Value Capital Method is $400, with a maximum tax of $200,000.
To use this method, you must give figures for all issued shares (including treasury shares) and total gross assets in the spaces provided in your Annual Franchise Tax Report. Total Gross Assets shall be those “total assets” reported on the IRS Form 1120, Schedule L relative to the company’s fiscal year ending the calendar year of the report.
The tax rate under this method is $400 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.
Assume your corporation has 1,000,000 authorized shares at $1.00 par value. However, the corporation has only issued 450,000 shares and has total gross assets of $1,200,000.
- The Total Gross Assets divided by Issued Shares – $1,200,000 / 450,000 = 2.666666
- 2.666666 is more than stated par value, so multiply 2.666666 times the authorized shares of 1,000,000 = 2,666,666
- So 2,666,666 is assumed par value capital.
- Since this amount is above 2 then round up to the next million which is 3 times the tax rate of $400 per million = $1,200
The calculation below is for a corporation having 2 classes of stock. The corporation has authorized 1,000,000 shares of stock with a par value of $1.00 and a second class of 250,000 shares of stock with a par value of $5.00, gross assets of $1,000,000.00 and issued shares totaling 485,000.
- Divide your total gross assets by your total issued shares carrying to 6 decimal places. The result is your “assumed par.” Example: $1,000,000 assets, 485,000 issued shares = $2.061856 assumed par.
- Multiply the assumed par by the number of authorized shares having a par value of less than the assumed par. Example: $2.061856 assumed par is 1,000,000 shares = $2,061,856.
- Multiply the number of authorized shares with a par value greater than the assumed par by their respective par value. Example: 250,000 shares $5.00 par value = $1,250,000
- Add the results of #2 and #3 above. The result is your assumed par value capital. Example: $2,061,856 plus $1,250,000 = $3,311,856 assumed par value capital.
- Figure your tax by dividing the assumed par value capital, rounded up to the next million if it is over $1,000,000, by 1,000,000 and then multiply by $400.00. Example: 4 x $400.00 = $1,600.00
The above calculation does not take in consideration an amendment changing your stock or par value filed with the Division of Corporations during the year. Issued shares and total gross assets within 30 days of the amendment must be given for each portion of the year during which each distinct authorized amount of capital stock or par value was in effect.
The tax is then prorated for each portion of the year dividing the number of days the stock/par value was in effect by 365 days (366 leap year), then multiplying this result by the tax calculated for that portion of the year. The total tax for the year is the sum of all the prorated taxes for each portion of the year.
Taxpayers owing $5,000.00 or more are required to pay estimated taxes in quarterly installments with:
- 40% due June 1
- 20% due by September 1
- 20% due by December 1
- and the remainder due March 1