Delaware LLC Franchise Tax: Everything You Need to Know
Delaware LLC franchise tax is a state fee for owning a Delaware company. 4 min read
Delaware LLC franchise tax is a state fee for owning a Delaware company. The company's income or activity has no impact on the franchise tax; it is required to stay in good standing. However, a “franchise tax” doesn't necessarily mean that the company is part of a franchised business.
If a company is not operated in Delaware, no accounting, income tax information, or manager or member information is required by the state, and the company isn't required to pay Delaware income tax.
Due Date of Delaware Franchise Tax
The Delaware franchise tax due date varies, based on a few different factors.
Corporations owe franchise tax by March 1 of each year. If the tax is not paid by this date, Delaware imposes a $200 penalty, as well as a 1.5 percent interest fee each month.
Delaware limited liability companies (LLCs) owe franchise tax by June 1 of each year. Limited partnerships (LPs) also owe franchise tax by June 1 of each year. If the tax is not paid by this date, Delaware imposes a $200 penalty and a 1.5 percent interest fee each month.
Corporations, LLCs, and LPs are taxed in arrears. This means that the tax due is based on the previous calendar year. Your annual report should also be submitted with your payment.
There is zero tolerance for late payments on franchise tax. Late payments incur a penalty fee automatically included in the franchise tax notice, regardless of the circumstances.
Delaware franchise tax due dates:
- Corporation — March 1
- Benefit Corporation — March 1
- Foreign Corporation — June 30 with a $125 fee
- Non-profit Corporation — March 1 with a $25 fee
- LLC — June 1 with a $300 fee
- Foreign LLC — June 1 with a $300 fee
- General/Limited Partnership — June 1 with a $300 fee
- Limited Liability Partnership — June 1 with a $200 fee per partner
How to Calculate Delaware Franchise Tax
The Delaware franchise tax amount varies, depending on the type of company. The total cost of franchise tax is a combination of the actual taxes due and the annual report fee.
- The franchise tax for an LLC or an LP is a flat rate of $300 annually.
- A corporation's franchise tax is calculated based on the type of corporation and the number of authorized shares it has.
- A non-stock or non-profit company is exempt from franchise tax in the state of Delaware. These companies aren't required to pay the annual tax, but they must file and pay the annual report fee of $25 per year.
- A minimum stock corporation is a company with 5,000 authorized shares or less. They must pay an annual report fee of $50 and a tax of $175, coming to $225 annually.
- A maximum stock corporation is a company with 5,001 authorized shares or more. They must pay an annual report fee of $50 and their tax falls between $200 and $200,000 annually.
Two Methods of Calculating Delaware Franchise Tax
1. The Authorized Shares Method
The state of Delaware uses this method to calculate the company's taxes initially. This method is calculated using the number of authorized shares in the company.
- 5,000 Shares or Less — $175
- 5,001 to 10,000 Shares — $250
- 10,000+ Shares or a Portion — Add $75
- Maximum Annual Tax — $200,000
A $50 annual report fee is added to the total franchise tax after it's calculated.
2. The Assumed Par Value Capital Method
This method allows the company to pay the lower of two calculated tax amounts. In some cases, it may be better to calculate the franchise tax with the assumed par value capital method.
The Assumed Par Value Capital method uses a company's total gross assets, based on Form 1120, Schedule L, and the total issued shares.
This is calculated using this formula:
- First, the gross assets are divided by the issued shares, and the total is the company's Assumed Par Value (APV).
- The APV number is then multiplied by the total authorized shares, the total of which is the company's Assumed Par Value Capital (APVC).
- The company owes $350 for every $1,000,000 of APVC. If the amount is above $1,000,000, it's rounded up the next million, never down.
This tax is often calculated to the minimum payment of $350 for the Franchise tax and another $50 for the annual report fee.
The Assumed Par Value Capital Method is complex, but companies are welcome to use a franchise tax calculator to make the process easier.
More information about Delaware franchise taxes and fees can be found here.
If you need help with Delaware franchise tax for your LLC or other company, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.