What is Delaware Franchise Tax?

Delaware franchise tax is a tax charged by the state of Delaware for the right to own a Delaware company. The tax has no effect on income or company activity. The tax is required to maintain the company's good standing in Delaware.

Paying Delaware franchise tax doesn't mean that your business is a franchise.

Along with your business's annual Delaware franchise tax, your business is required to submit a Delaware annual report. Both the Delaware annual report and the Delaware franchise tax are due by March 1 each year.

Your Delaware franchise tax must be paid online. If you don't want to pay your Delaware franchise tax yourself, you can hire a registered agent to do it for you. The registered agent will charge a small fee to complete the filing of your Delaware franchise tax.

The goal of the Delaware franchise tax is to make owning a business in Delaware simple. Since the tax payment process is simple, businesses are more likely to want to be incorporated in Delaware.

If you pay your Delaware franchise tax late, you'll be charged a late fee. The late fee is $125.00 and a 1.5 percent monthly interest afterwards.

How to File

Filing your Delaware franchise tax is a simple, online process. There are three steps.

  1. Calculate your franchise tax fees and check your math.

  2. Enter business entity file number and corporation information.

  3. Pay the Delaware franchise tax.

Calculate Your Franchise Fee

Domestic corporations can only file online.

Enter Business Entity File Number

To find your Business Entity File Number search for your business name. Your business name and number should be returned.

Enter Corporation Information

  • Federal Employee Identification Number or EIN

  • Corporation's physical address

  • Names and addresses of corporation officers

  • Names and addresses of all corporation director

  • Name, title, and address of person completing the filing

Pay the Delaware Franchise Tax and Delaware Annual Report Fee

Submit the required fees.

Payment can be submitted with electronic check or credit card. Once payment is submitted, you're finished.

Cost

The minimum Delaware franchise tax fee is $175 with a $50 filing fee. The minimum Delaware franchise tax and annual report payment is $225 for domestic corporations.

How to Calculate Your Delaware Franchise Tax Fee

Entity Type

Due Date

Fee

Corporation

March 1

See below

Benefit Corporation

March 1

See below

Foreign Corporation

June 30

$125 annual report fee

Nonprofit Corporation

March 1

$25 annual report fee

LLC

June 1

$300

Foreign LLC

June 1

$300 annual report fee

General or Limited Partnership

June 1

$300

Limited Liability Partnership

June 1

$200 per partner

 

LLC or LP

The Delaware franchise tax for this business is simple. It is a flat fee of $30 due on June 1.

Corporation

The Delaware franchise tax for a corporation is slightly more complicated. It is based on the corporation type and the authorized shares. The total cost also includes an annual report fee.

When paying the annual report fee, corporations are sorted into two categories.

Sole Proprietorship

With this type of business, your business income will be distributed to you as the sole proprietor. You will pay tax to the state on that income on your individual state tax return. The tax rate will depend on your overall taxable income that year.

Authorized Shares

Annual report fee and tax fee

Less than or equal to 5,000

$50 annual fee, $175 tax

5,001 or more

$50 annual fee, $200-$180,000 tax

 

If your company falls into the maximum stock option of 5001 or more shares, there are two possible methods to calculate the Delaware franchise tax.

  • The Authorized Share Method

  • The Assumed Par Value Capital Method

The Authorized Share Method

This is the first method that is typically used to calculate tax.

  • 5,001-10,000: $250

  • Additional 10,000: add $75

The maximum payment is $180,000. Don't forget to include the $50 annual report fee.

The Assumed Par Value Capital Method

To use this method, you must supply the company's total gross assets and total number of issued shares.

Often, the tax is then calculated to the minimum payment of $350, with a $50 annual report fee.

The calculation used in this method is complex. For questions, contact the Harvard Business Services, Inc. A report of the calculation can be emailed to you.

Which Method to Use

Delaware allows you to pay the lower of the two methods. This means that if you receive a high bill which was calculated under the first method, you can request a recalculation using the second method.

Nonprofit

Non-stock or non-profit companies are considered exempt for tax in Delaware. These types of companies must file an annual report fee. This fee is $25.

Reasons to consider using Delaware Franchise Tax

The Delaware franchise tax is beneficial to corporations because it is a simple process to submit and calculate payment. The Delaware franchise tax is also beneficial to businesses as it is a small fee in comparison to other states.

How Do I Pay My Delaware Franchise Tax?

Paying your Delaware franchise tax is simple.

Go to the Delaware Inc. website and follow the instructions.

If you have problems, you can email or call the Delaware Inc. at payments@delawarinc.com or 800-345-2677, Ext. 6904.

What Do I Submit with Payment?

When you submit your Delaware franchise tax payment, you'll also need to submit an annual report.

The annual report must include:

  • The corporation's physical address

  • The name and physical address of at least on director

  • The name, title, and physical address of one officer (if you have officers)

Foreign File

Business that are formed out of state but are registered to do business in Delaware must pay a $125 registration fee.

Foreign corporations, those that are formed outside of Delaware, cannot file online.

To file as a foreign corporation, mail in the necessary documents. The Delaware franchise tax for foreign corporations is due by June 30 every year.

Multistate Businesses

This article focuses on businesses that are operating solely in Delaware. If your business is operating in multiple states, your business may have "nexus" with those other states. This means that you're likely to need to pay taxes in those states.

If your business was formed or is located in another state but generates income in Delaware, you may need to pay Delaware taxes. If you own a business that operates in multiple states, you will greatly benefit from the knowledge of a tax professional. Multistate taxes and determining nexus can be very complicated.

Deadline: Delaware Franchise Tax

Your Delaware franchise tax due date depends on the type of business you own.

Corporation

The Delaware franchise tax for a corporation is due on March 1.

If your Delaware franchise tax is submitted late, a $125 late fee and interest fee of 1.5 percent will be charged.

LLC

Your Delaware franchise tax is due on June 1 for an LLC. The limited partnership or LP franchise tax is also due on June 1.

If the tax is not paid on or before June 1, a late fee of $200 and a monthly interest of 1.5 percent will be charged.

Arrears

Corporations, LLCs, and LPs are taxed is arrears. This means that the tax due is for the previous calendar year.

Late Fee

If you don't file your Delaware franchise tax on time, you will be charged a late fee.

The late fee is a $125 penalty. You will also be charged a 1.5 percent monthly interest on the amount due.

Special Cases for Delaware Franchise Tax

You may have a special case if any of the following are true:

  • Total gross assets are zero.

  • Number of shares issues is zero.

  • Shares are not assigned a par value.

If any of these are true, contact the Delaware Secretary of State Franchise Tax for assistance. For assistance, call this number: 302-739-3073

Reducing Costs

There are ways to reduce your Delaware franchise costs in certain circumstances.

Startups

To reduce the taxes paid by a startup, use the Assumed Par Value method. This method calculates the taxes by total assets.

As long as your issued shares constitute a third to half of your authorized shares, this method will save you money. If not, consider the Alternative Par Method.

File Your Annual Report

Delaware franchise tax is due on March 1. An annual report is due at the time of filing the Delaware franchise tax.

The report should be filed online. The report must include the necessary information:

  • The physical address of the corporation

  • List of all directors

  • List of at least on officer

  • Issued shares

  • Gross assets

Delaware Annual Report

When you file your Delaware franchise tax, an annual report must also be filed.

Fees

The annual report fees are:

  • LLPs and LLLPs: $300 per partner

  • Delaware nonprofit: $25

  • Foreign corporations: $225

  • LLCs, LPs, GPs: $300

  • Domestic corporations: $225

  • Domestic professional service corporation: $225 minimum

Delaware: Tax Haven

Delaware is considered a tax haven or tax shelter.

A tax haven or shelter is a method of reducing taxable income which results in a reduction of tax payment. The method is any that recovers more than $1 in tax for ever $1 spent within a four-year period. Methodology of tax havens vary. A tax shelter can be created by an individual or a corporation.

Delaware provides a favorable tax shelter for U.S. corporations. There are other states, such as Nevada, that also do this. This leads to a high number of business being incorporated in those tax shelter states.

These are the reasons that make Delaware a tax haven.

No State Taxes

Whether your business is physically in Delaware or not, you don't pay any state taxes. Delaware has no sales tax.

Delaware also has no personal property tax or value-added taxes.

Small Franchise and LLC Tax

The Delaware franchise and LLC tax is a flat fee. Most states require a tax fee based on earned income. This means that Delaware tax is much lower than other states LLC and franchise taxes.

Corporate Privacy

When filing franchise tax in Delaware, all the must be submitted is the physical address of the business and the name of the registered agent. This can be a business owner or someone else.

By not requiring more information, businesses that file their franchise tax in Delaware can maintain privacy. The names of the owners, LLC members, and managers are not required to be made public.

S-Corporations

Delaware allows S-corporations. These can be very helpful when paying taxes.

Separate Court System

Delaware has what is called a Court of Chancery. This allow the state to adjudicate corporate litigation. The corporate laws and cases decided in Delaware are often used by the Supreme Court to influence decisions.

Frequently Asked Questions

  • Are my Annual Registered Agent Fee and Franchise Tax Fee the same?

No, these are two separate fees.

The annual franchise tax is required and paid to the state of Delaware.

The annual Registered Agent fee is paid to Harvard Business Services, Inc. for you to act as an agent of your business in the state of Delaware. The Registered Agent fee is $50 per year. This is the lowest Registered Agent fee in the industry.

  • What happens after I pay my Delaware franchise tax?

Your business may require a Delaware Certificate of Good Standing.

If so, that document can be sent directly from the Delaware Secretary of State. This document certifies the date the company was formed, that the company is current, and that the company is in good standing. This is not the same as your annual report.

If you're interested in incorporating your business in Delaware or need to pay your Delaware franchise tax, consider posting a job to receive free custom quotes from one of UpCounsel's top 5% of attorneys.