If you are the owner or compliance officer of one of the hundreds of thousands of business corporations that call Delaware home (or you are thinking about becoming one) you should know this: Delaware corporations have to file an annual franchise tax report and pay an annual franchise tax with the Delaware Secretary of State every year by March 1.
Who has to file and pay?
Every for-profit corporation incorporated in Delaware is subject to the annual franchise-tax requirement. The corporation does not have to be doing business in Delaware or earn any income there.
It’s not an income tax; it’s a franchise tax. You are paying for the right to incorporate and exist as a Delaware corporation.
Non-profit corporations are generally exempt from paying the franchise tax. However, they still have to file an annual report by March 1. (The filing fee is $25.)
How much does my corporation have to pay?
A corporation has to pay a $50 filing fee plus the franchise tax. The franchise tax can be calculated based on one of two methods.
The Authorized Shares method is the default method, meaning that the state calculates the tax using that method and lists the amount due on its notice. However, the corporation can recalculate using the Assumed Par Value Capital Method.
“Authorized shares” method: The minimum tax due under this method is $175 and the maximum is $200,000. The tax due depends on the number of authorized shares. (That's the maximum number of shares the corporation can issue as set forth in its certificate of incorporation.) The tax is calculated as follows:
- 1 to 5,000 shares: $175
- 5,001 to 10,000 shares: $250
- Each additional 10,000 shares or portion thereof add $85
CT tip: For shares without par value, this method has to be used.
“Assumed par value capital” method: The minimum tax is $400 and the maximum tax is $200,000 (except if the corporation has been identified as a Large Corporate Filer). The tax rate under this method is $400 per $1 million (or portion thereof) of assumed par value capital.
Large corporate filer: Large corporate filers pay an annual tax of $250,000. Large corporate filers have a class or series of stock listed on a national securities exchange and that reported in financial statements both of the following: (1) consolidated annual gross revenues equal to or greater than $750 million or consolidated assets equal to or greater than $750 million and (2) consolidated gross revenues not less than $250 million and consolidated assets not less than $250 million.
Estimated payments: Corporations owing $5,000 or more are required to pay estimated taxes in quarterly installments.
What about the annual franchise tax report?
The information set forth on the report includes the following:
- The registered agent and registered office
- The principal place of business
- The number and par value of authorized shares
- The names and addresses of all the directors
- The name and address of the officer who signs the report
CT Tip: The Annual Franchise Tax Report must be filed online.
What are the penalties for non-compliance?
There is a $200 penalty for failure to file a complete report by the due date. Also, the Secretary of State will not issue a Certificate of Good Standing for a corporation that owes franchise taxes or a completed report.
Corporations that neglect or fail to pay the franchise tax, or to file a complete franchise tax report, for more than one year will have their charters voided.