Franchise tax is a tax charged by Delaware to businesses for the right to do business in the state. It is separate from income taxes owed by the business, and applies to most businesses, not just “franchises”, despite the name.
If your business was formed or registered in Delaware at any point during a year, you owe franchise tax there for that year. It’s not prorated on the number of days. The calculation method and due date depend on your entity type.
For LLCs, Delaware's "annual tax" is $300. Easy. (Delaware calls this an "annual tax" rather than a "franchise tax"; who knows why.)
For Series LLCs, each registered series must pay an additional $75 annual tax on top of the $300 base tax paid by the parent LLC.
For corporations, it’s a bit more complicated. The minimum franchise tax in Delaware is $175, and the maximum is $200,000 for most corporations (or $250,000 for Large Corporate Filers — publicly traded corporations meeting specific revenue and asset thresholds).
Delaware allows you to pay with the lesser of two methods: the Authorized Shares Method or the Assumed Par Value Method.
The Authorized Shares Method tax is a bit simpler and calculated based on the number of authorized shares. For corporations having no par value stock, the Authorized Shares Method will always result in the lesser tax.
If you have a lot of authorized shares, this method will be a large amount. For example, if you have a little over 23 million authorized shares, you’ll be at or near the maximum annual tax. Here’s how you calculate it:
The Assumed Par Value Method is a little more complicated, but it can be less than the authorized shares method if you have a lot of shares. You’ll need to know total gross assets, total issued shares, and total authorized shares. Here’s how you calculate it:
Divide your total gross assets by your total issued shares, carrying to 6 decimal places. The result is your “assumed par”.
Gross assets is “total assets” reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company’s fiscal year ending the calendar year of the report.
Multiply the assumed par by the number of authorized shares having a par value (as listed on your articles of incorporation) of less than the assumed par.
Multiply the number of authorized shares with a par value (as listed on your articles of incorporation) greater than the assumed par by their respective par value.
Add the results of #2 and #3 above. The result is your assumed par value capital.
Calculate your tax by dividing the assumed par value capital, rounded up to the next million if it exceeds $1,000,000, by 1,000,000 and then multiplying the result by $400.00.
When using the Assumed Par Value Method, you may need to account for distinct time periods on your franchise tax filing. Delaware creates these time periods automatically based on filings you made with the state throughout the year.
However, time periods affect the gross assets figures and asset dates used on the filing. Whereas with one time period, Delaware requires you use a Gross Assets figure from your U.S. Form 1120, Schedule L, when time periods are involved, you must use a gross assets number that is “as of the nearest date on which the amount is obtainable”, within 30 days of the period end date as long as it’s in the same year.
In a franchise tax filing with multiple periods, the last period's end date is your fiscal year end date.
This is a complicated topic, so we’ve created a separate guide about Gross Assets and Asset Dates as used on the Delaware Franchise tax filing.
There are specific monetary penalties for not paying franchise tax, but more importantly, you can have your charter voided. Penalty for non-payment or late payment is $200.00. Additionally, interest accrues on the tax and penalty at the rate of 1.5% per month.
If a corporation doesn't pay franchise tax or file a complete annual report for one year, the corporation's charter can be voided. Delaware notifies delinquent corporations by November 30, and charters become void if taxes and reports aren't filed by the following March 1.
Similarly, if an LLC doesn't pay the annual tax in Delaware, the LLC loses its good standing status with the state. And if the tax remains unpaid for three years from the due date, Delaware cancels the LLC's certificate of formation on the third anniversary of that due date.
For corporations, if your business is active in Delaware in a given year, Franchise taxes are due March 1st of the following year (this date is June 1st for companies that are foreign registered in Delaware, and the tax is simply a flat fee of $125).
For LLCs, if your business is active in Delaware in a given year, Franchise taxes are due June 1st of the following year.
In addition to the franchise tax, Delaware corporations must pay an annual report filing fee when submitting their franchise tax return. Non-exempt corporations pay a $50 filing fee, while exempt corporations (nonprofits and certain other entities) pay $25. This filing fee is separate from the franchise tax calculation and is paid at the same time as your franchise tax on March 1st.
Discern automatically calculates your Delaware franchise tax using both methods to ensure you pay the lowest amount possible, then files and pays on your behalf.
Our platform also tracks quarterly estimated tax obligations if you owe $5,000 or more, sending reminders before each payment is due.
Ready to eliminate Delaware franchise tax headaches? Book a demo with Discern today.
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