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.
The maximum number of shares that can be authorized for issue and still be covered by the minimum franchise tax is 5000. The tax goes up on what is known as a sliding scale above that.
When forming your corporation, please consider the following examples and tables for the computation of the annual franchise tax for simple, single class corporations. Please note: The calculations involved for multi-class corporations are additive totals of each class.
Authorized Shares Method and The Assumed Par Value Method
For a corporation, there is a required Annual Report filing fee of $50.00 due on March 1st, plus a tax based upon the lower of the following two calculation methods. The Delaware Franchise Tax Notice uses the Authorized Shares Method by default. However, if you have more shares than the minimum, sometimes the Assumed Par Value method may result in a considerably lower Franchise Tax. This alternative method requires that you file a statement setting forth the amount of total gross assets of the corporation.
Authorized Shares Method
5000 shares or less (minimum tax) - $75.00
5001 – 10,000 shares - $150.00
Each additional 10,000 shares, or portion thereof add - $75.00
Maximum Annual Tax is - $180,000.00
Example: A corporation has authorized the issue 5000 shares – the total fee will be $125.00 ($75.00 tax and the $50.00 filing fee). The same fee would apply if the company authorized the issue only 100 shares. Another example would be a company which authorized 10,500 shares – the total fee will be $275.00 ($150.00 + $75.00 tax plus the $50.00 filing fee).
Assumed Par Value Capital Method
Delaware Division of Corporations states: 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 (Federal Corporation Tax Return) relative to the company's fiscal year ending the calendar year of the report. The tax rate under this method is $350.00 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 $350.00.
Total Gross Assets shall be those Total Assets reported on IRS Form 1120 Schedule L. (part of the IRS Corporation income tax return).
> Total Gross Assets divided by Issued Shares carrying to six decimal places = Assets per Share.
> Assets per Share must be greater than stated par value.
> Assets per Share times Authorized Shares = Assumed Par Value Capital.
> Round to next million and multiply $350.00 per million to calculate tax.
Example: 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 $1,200,000.00.
> 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. 3 times the tax rate of $350.00 per million = $1,050
The above is a simple calculation and does not take into consideration an amendment changing your authorized amount of capital stock or par value during the year, or multiple class stock. Also, starting with 2009 the filing fee has increased to $50. If you have any questions or difficulties with preparing your annual report and/or paying your annual franchise tax, please Contact us. As your Delaware Registered Agent we will be pleased to help.