Overview of the Delaware Franchise Tax (Corporations, Limited Liability Companies, Limited Partnerships, and General Partnerships) and Calculating Methods for Corporations
March 1st is an annual date corporations incorporated in the State of Delaware should keep in mind because that is the due date for the Delaware annual report and franchise tax payment. For corporations, the minimum franchise tax payable is currently $175 when using the “Authorized Shares Method” and $400 when using the “Assumed Par Value Capital Method” (see 8 DE Code § 503(a)). The maximum franchise tax for either method is currently set at $200,000, unless the underlying corporation is identified as a “Large Corporate Filer.” Each year the Delaware Secretary of State compiles a list of “Large Corporate Filers” pursuant to 8 DE Code § 503(c) which, as such, are subject to a franchise tax payment equal to $250,000. Corporations that may have a franchise tax payable in excess of $5,000 can make estimated payments throughout the year of 40% due June 1st, 20% due by September 1st, 20% due by December 1st, and the remainder due March 1st.
Although not required to file an annual report, all limited liability companies, limited partnerships, and general partnerships formed or registered in the State of Delaware are required to pay an annual franchise tax on or before June 1. For limited liability companies, limited partnerships, and general partnerships, Delaware has a flat franchise tax of $300 per year. Delaware assesses franchise taxes on all corporations, limited liability companies, limited partnerships, and general partnerships that are active within the records of the Delaware Division of Corporations anytime during the year.
There is a penalty equal to $200 plus 1.5% interest per month on tax and penalty for failure to file the Delaware annual report and/or pay the required franchise taxes, as applicable. Certain corporations may be deemed “exempted corporations” and not required to pay a franchise tax if they meet the criteria specified in 8 DE Code § 501(b). Please note, “exempted corporations” are still required to adhere to Delaware’s annual report filing requirement. Delaware requires all annual reports to be filed online and any franchise tax payment to be made electronically. Both can be completed by logging into the Delaware Corporations Information System (DCIS – eCorp), which can be located at: https://icis.corp.delaware.gov/ecorp/logintax.aspx?FilingType =FranchiseTax. An entity’s registered agent can expect to receive the Delaware notification of annual report and franchise tax due, as applicable, in December or January of each year.
Calculating Methods for Franchise Tax (Corporations Only)
The following is a breakdown of the franchise tax calculating methods corporations can use:
- Authorized Shares Method – Corporations having no par value stock will likely want to use this method as the authorized shares method calculates your franchise tax by the number of authorized shares your corporation has:
- 5,000 shares or less equates to the minimum franchise tax amount of $175;
- 5,001 – 10,000 shares equates to a franchise tax in the amount of $250; and
- each additional 10,000 shares or portion thereof above 10,000 shares equates to an additional franchise tax of $85.
- Assumed Par Value Capital Method – To use this method, you must use the values provided on your Annual Franchise Tax Report for all issued shares (including treasury shares) and total gross assets. Total gross assets shall be equal to the amount reported on the company’s U.S. Form 1120, Schedule L (Federal Tax Return). The franchise tax rate under this method is equal to $400 per million or portion of a million of the assumed par value capital. Follow these steps to calculate your franchise tax using the assumed par value capital method:
- First, divide your total gross assets by the total issued shares, carrying to sixth decimal places (this is your “assumed par”).
- Second, multiply the “assumed par” by the number of authorized shares having a par value of less than the “assumed par.”
- Third, multiply the number of authorized shares with a par value greater than the “assumed par” by their respective par value.
- Fourth, add together the results of steps two and three above (this is your “assumed par value capital”).
- Fifth, divide 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 (this is your payable franchise tax).
- The franchise tax payable by any non-stock, for profit corporation that does not qualify as an “exempted corporation” is currently equal to $175.
For more information regarding the Delaware annual report or franchise tax for corporations, please visit the Delaware Division of Corporations webpage at: https://corp.delaware.gov/paytaxes/. For more information on calculating your franchise tax payment or to see sample calculations for corporations, please visit the the Delaware Division of Corporations webpage at: https://corp.delaware.gov/frtaxcalc/. For more information regarding the Delaware franchise tax for limited liability companies, limited partnerships, and general partnerships, please visit the Delaware Division of Corporations webpage at: https://corp.delaware.gov/alt-entitytaxinstructions/.
If you are a shareholder of a corporation incorporated in the State of Delaware or a member of a limited liability company, limited partnerships, or general partnerships and have questions regarding Delaware’s franchise tax, please consider consulting with a legal or tax professional or accountant to assist with fulfilling your obligations under Delaware law.