If you are the owner or compliance officer of one of the hundreds of thousands of business entities that call Delaware home (or are considering doing so), you should be aware of the following: Every year, by March 1, Delaware companies must submit an annual franchise tax report and pay an annual franchise tax with the Delaware Secretary of State.
Who is required to file and pay?
Every for-profit company formed in Delaware is required to pay an annual franchise tax. The company is not required to do business or produce money in Delaware.
It is not an income tax; rather, it is a franchise tax. You are paying for the right to incorporate as a Delaware company and to exist as such.
Non-profit companies are excluded from paying the franchise tax in most cases. They must, however, submit an annual report by March 1. (There is a $25 filing fee.)
How much is my company required to pay?
A company must pay a $50 filing fee in addition to the franchise tax. The franchise tax may be computed in one of two ways.
The Authorized Shares approach is the default method, which means that the state calculates the tax and shows the amount payable on its notice using that technique. The company, on the other hand, may recalculate using the Assumed Par Value Capital Method.
The “authorised shares” approach has a minimum tax of $175 and a maximum tax of $200,000. The amount of tax payable is determined by the number of authorised shares. (This is the maximum number of shares that the company may issue under its charter of incorporation.) The tax is determined in the following manner:
$175 for 1 to 5,000 shares
$250 for 5,001 to 10,000 shares
Each extra 10,000 shares or fraction thereof adds $85 to the total.
CT tip: This procedure must be used for shares with no par value.
The “assumed par value capital” technique imposes a $400 minimum tax and a $200,000 maximum tax (except if the corporation has been identified as a Large Corporate Filer). Under this system, the tax rate is $400 per $1 million (or fraction thereof) of estimated par value capital.
Large corporate filers: Large corporate filers pay a $250,000 yearly tax. Large corporate filers have a class or series of shares listed on a national securities market, and both of the following are stated in financial statements: (1) consolidated yearly gross revenues of $750 million or more, or consolidated assets of $750 million or more, and (2) consolidated gross revenues of $250 million or more, or consolidated assets of $250 million or more.
Estimated payments: Corporations owing $5,000 or more are obliged to make quarterly estimated tax payments.
What about the franchise tax report every year?
The following information is included in the report:
The name of the registered agent and the address of the registered office
The main location of business
The total number of authorised shares and their par value
All of the directors’ names and addresses
The officer who signed the report’s name and address
CT Tip: You must submit the Annual Franchise Tax Report online.
What are the consequences of noncompliance?
Failure to submit a comprehensive report by the required date carries a $200 penalty. In addition, if a business owes franchise taxes or a completed report, the Secretary of State will not issue a Certificate of Good Standing.
Corporations whose charters are cancelled because they fail to pay the franchise tax or submit a comprehensive franchise tax report for more than one year will have their charters revoked.