If you have a Delaware corporation or are considering forming a corporation in Delaware, annual corporate franchise taxes and report filing will be a pivotal part of maintaining corporate compliance and keeping your entity in good standing.
Today we're answering all of the most common questions about Delaware corporate franchise taxes.
What are Delaware franchise taxes?
Delaware law requires that Delaware corporations pay an annual fee to the state called franchise tax.
Paying this annual tax keeps the business in good standing, meaning that the business is active and is recognized by the state of Delaware as a valid entity.
When are Delaware franchise taxes due?
Corporate franchise taxes are due annually for all domestic corporations on or before March 1st.
How much are Delaware franchise taxes?
Taxes for Delaware corporations are calculated using one of two methods: the Authorized Shares Method or the Assumed Par Value Method.
The minimum annual franchise tax is $175 for corporations using the authorized shares method and $400 for corporations using the assumed par value capital method.
Authorized Shares Method
Using the authorized shares method, the fees are as follows:
- 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
Assumed Par Value Method
The Assumed Par Value Method is a more complex calculation using the figures provided in the corporations annual report. It utilizes the figures for all issued shares and gross total assets to determine the amount owed in taxes.
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.
How to determine what you owe in franchise taxes
If you’re unsure how much your corporation owes in franchise taxes, you can utilize the calculator provided by the division of corporations here (spreadsheet with calculations will download).
If you have any questions about how much you owe in taxes or need assistance, please feel free to give us a call at 800-223-3928.
How am I notified about franchise taxes?
The annual Corporate Franchise tax notifications are sent to your Delaware registered agent annually. Your registered agent is responsible for forwarding this notice to you. Some registered agents forward them by mail, while others scan and email them to you.
This is one reason it's crucial that your registered agent has your current contact information at all times.
Submitting Your Annual Report
Delaware domestic corporations must also submit their annual report to the state of Delaware. This is also due on or before March 1st.
The annual franchise tax and report can be filed and paid simultaneously on the state website. There is a $50 fee to file your annual report. This brings the total annual cost of maintaining a Delaware corporation to $225 for many corporations.
What the Annual Report Should Include
In accordance with Delaware law, corporations registered in Delaware must provide an annual report to the state.
The annual report must include:
- The physical address of the corporation (note, not the address of your registered agent)
- The name and address of one officer of the corporation
- The names and physical address of each director of the corporation
- Authorization by one officer to file the report
What Happens if you do not pay your franchise taxes or submit your annual report?
If your corporation fails to pay annual franchise taxes or submit your annual report on or before March 1st, a $200 penalty will be assessed plus 1.5% interest per month on the taxes and penalty due.
This means that your corporation is no longer in good standing with the state of Delaware and you would be unable to get a certificate of good standing.
These are often required during typical business transactions such as:
- Loans or financing
- Potential investors
- Other state governments
- Banks Entering into business contracts
More recently, many companies needed to produce a certificate of good standing during their Paycheck Protection Loan application.
If it has been two years since your corporation last paid taxes to the state, your entity may have gone void. This means that according to the state of Delaware, it no longer exists. While this is an urgent issue if it happens to your company, it can be swiftly fixed with a few key steps - here's what to do if your company is not in good standing.
Paying corporate franchise taxes and submitting an annual report are key elements of corporate compliance in the state of Delaware. We urge you to take these requirements seriously and are here to help with any questions or issues you may have. Feel free to contact us or give us a call at 800-223-3928.