Delaware Franchise Tax

Many businesses (and specifically eCommerce businesses) are registered in Delaware. The Franchise tax obligations for your Deleware business will depend on whether your business entity is formed as a limited liability company (i.e., LLC), partnership or a corporation. Below we outlined the 411 on Delaware franchise taxes for your business.

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Note that the due dates we included are for calendar year taxpayers and may not apply to you if your business has a tax year that does not end on December 31. In addition, the information below refers only to franchise or net worth tax and does not include registration fees or other regulatory payments that may be due by your business.

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For more information on Franchise taxes, check out the following Blog.

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LLCs and Limited Partnerships – Due Date: June 1

What Online Sellers Need to Know

• LLCs or partnerships formed or registered in Delaware pay an annual franchise tax, currently at a fixed flat rate of $300.
• There is no requirement to file an Annual Report if you are not a Delaware corporation.
• If the annual franchise tax isn’t paid by June 1, there may be a penalty due of $200 and interest of 1.5% per month on the tax amount and penalty originally due.

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How to pay the annual franchise tax?

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Here are step-by-step  for paying the annual franchise tax in Delaware:

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1. Locate your company’s 7-digit Delaware business entity file number. If you don’t know this number, you can find it using the Delaware entity search tool and searching for your company’s legal name.
2. After locating your 7-digit file number, login to the state of Delaware’s website.
3. Click the green “pay taxes” button.
4. Our company’s fee should be $300. You can choose to pay either by credit card or ACH. After inputting your payment information, push the green “Submit” button to finalize your Delaware state taxes.
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Corporations - Due Date: March 1

What Online Sellers Need to Know

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• All corporations incorporated in Delaware must pay the Delaware Franchise Tax and file an Annual Report by March 1.
• Corporations with no revenue in the previous year may also be required to pay.
• If the Franchise Tax isn’t submitted by March 1, there is a $200 late fee and interest of 1.5% per month on the tax amount originally due.
• Corporations owing $5,000 or more should make estimated payments with 40% due June 1, 20% due by September 1, 20% due by December 1, and the remainder due March 1.

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How to calculate the Delaware franchise tax?

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There are two methods that you can use to calculate the Franchise tax due. Use the method that results in less tax. All corporations using either method will have a maximum tax of $200,000.

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A. Authorized Shares Method (minimum tax of $175)

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For corporations having no par value stock the authorized shares method will always result in the lesser tax.

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• 5,000 shares or less (minimum tax): $175.
• 5,001 – 10,000 shares: $250.
• Each additional 10,000 shares or portion thereof add $85 but not for a total of more than $200,000.

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B.Assumed Par Value Capital Method (minimum tax of $400)*

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To use this method, you must quantify all issued shares (including treasury shares) and total gross assets in the spaces provided in your Annual Franchise Tax Report.

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• Total Gross Assets=“total assets” reported on the US Federal corporate tax return relative to the company’s fiscal year ending the calendar year of the report, e.g., for the 2020 Franchise tax, use the total assets to be reported on the balance sheet of your 2020 tax return.
• If the assumed par value capital is less than $1 million, the tax is calculated by dividing the assumed par value capital by $1 million then multiplying that result by $400.
• We will walk you through an example to give you the basic idea: Let’s assume a corporation has 7.5 million authorized shares with a par value of $0.01, gross assets of $600,000 and issued shares of 5 million:

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1. Calculate “assumed par” value: Divide total gross assets by your total issued shares carrying to 6 decimal places. Ex: 600000/5,000,000=$0.12
2. Multiply the assumed par from step #1 by the number of authorized shares having a par value of less than the assumed par. Ex: 0.12*7.5 million=900,000.‍
3. Multiply the number of authorized shares with a par value greater than the assumed par by their respective par value. In this example, 0.
4. Calculate the assumed par value capital: Add the results of #b and #c above. 900,000+0 = 900,000
5. To calculate your tax: Divide the assumed par value capital (i.e., #d above), rounded up to the next million if it is over $1 million, by 1 million and then multiply by $400. 900,000/1,000,000*400=360.
6. The minimum tax for the Assumed Par Value Capital Method of calculation is $400. In this case, even though the result was $360, $400 would be the minimum tax to be paid.
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How to pay the annual franchise tax?

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Here are step-by-step for paying your annual franchise tax in Delaware:

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1. Locate your company’s 7-digit Delaware business entity file number.
2. If you don’t know this number, you can find it using the Delaware entity search tool by searching for your company’s legal name. After locating your 7-digit file number, log in to the state of Delaware’s website and click on the “File Annual Report” link for the relevant tax year.
3. Enter your company information: Complete the “Stock Information” section to adjust your taxes owed shown in the upper right corner:  
   a. Enter the number of shares your company has issued,  
   b. Enter the Gross Assets (i.e., the “Total Assets” on your corporate income tax return),  
   c. Enter the Asset Date (i.e., the same as the last date of your fiscal year).
4. Click the “Recalculate Tax” button.
5. Complete the remaining required fields indicated with a red asterisk (*).
6. When all required information is complete, click on the green “Continue Filing” button to review your information.
7. Verify you entered all the correct information and press the green “Proceed to Payment” button.
8. The Delaware Franchise Tax and Annual Report filing fee can be paid by either credit card or ACH. After inputting your payment information, push the green “Submit” button to finalize your Delaware state taxes.
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^{The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.}