How to calculate the Franchise Tax for your Delaware company

Published: January 19, 2015 at 10:35 by Renate Harrison

All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax online at http://corp.delaware.gov/paytaxes.shtml

Franchise tax is the fee imposed by the State of Delaware for the right or privilege to own a Delaware company.

If you have a company incorporated in Delaware, the annual franchise tax filing is due March 1st. The penalty for not filing a completed Annual Report on or before March 1st is $125.00 plus 1.5% interest per month on the total unpaid balance.

LLPs and Partnerships have a different deadline (June 1st)

The total cost of the franchise tax is comprised of an annual report fee and the actual franchise tax due.

– The franchise tax for a Delaware LLP is a flat annual rate of $300.00 as of July 1st 2014

– A Non Stock/Non profit company is considered exempt with the state of Delaware. This company does not pay annual tax but must file and pay the annual report fee of $25.00 per year

– Franchise tax for a corporation is based on your corporation type and the number of authorized shares your company has:

A corporation having 5000 authorized shares or less is considered a minimum stock corporation. The Annual Report Fee is $50.00 and the franchise tax would be $175,00 for a total of $225,00.

A corporation having 5001 authorized shares and up is considered a maximum stock corporation. The Annual Report Fee is $50.00 and the tax would be somewhere between $200.00 and $180,000.00 per year.

There are two methods to calculate the franchise tax for maximum stock corporations:

1. The Authorized Shares Method is the default method used by Delaware unless otherwise specified by the corporation. This method is based on the number of shares the company has authorized.

1-5000 incurs a $175.00 tax
5001-10000 incurs a $250.00 tax
Each additional 10000 shares or portion thereof over 10000 incurs a $75.00 tax

For example, a corporation with 20005 authorized shares pays $400.00 ($250.00 + (2x$75.00)

2. The Assumed Par Value Cap Method. This is the method that a company can choose to have its annual franchise taxes recalculated and reduced. In this method the calculation is based on all issued shares, authorized shares and total gross assets in the following manner:

Step 1: Divide total gross assets by total issued shares (assumed par value)

Step 2: Multiply assumed par value by total authorized shares (assumed par value capital)

Step 3: The franchise tax is calculated at $350.00 per every 1000000 or portion thereof of assumed par value capital

All corporations using either method will have a maximum tax of $180,000.00.

The state Franchise Tax Calculator can help determine the Tax and can be found online at http://corp.delaware.gov/taxcalc.shtml