How Do I Compute the Delaware Franchise Tax?

The Assumed Par Value Capital Method in the above example results in a much lower tax ($26,800 vs. $170,165). Delaware would automatically show the higher tax due on their website using the authorized shares method. It is up to the taxpayer to select the Assumed Par Value Capital Method if it results in a lower tax.

Delaware Division of Corporations Resources

If a company doesn’t have a physical presence in Delaware, beginning inventory definition there are professional registered agents available for hire; prices and levels of service vary. Incorporating in a state usually creates income tax nexus with the jurisdiction. However, in addition to incorporation, a corporation must be “doing business” in Delaware to be subject to the state income tax. The above calculations must be done for each class of stock that is authorized by a corporation.

For more help investors use leverage ratios to gauge financial health with tax and compliance matters, see How can my corporation get help complying with Delaware’s requirements?.

How to figure out your corporate franchise tax in Delaware:

This option is fairly simple; 5000 shares or less you pay the minimum $175. If your DE Corporation has high value assets, the Assumed Par Value Capital Method is more complicated, but sets a cheaper tax fee. It is mandatory for Delaware Corporations to file their annual franchise taxes online. There are several variables that enter the Assumed Par Value Capital Method including the corporation’s gross assets, issued shares, number of authorized shares and their par value. Delaware provides a Microsoft Excel worksheet that can be used to show the tax based on various assumptions.

Estimated Tax

The minimum franchise tax is $175.00 for corporations using the Authorized Shares Method and $400.00 for corporations using the Assumed Par Value Capital Method. All corporations using either method will have a maximum tax of $200,000.00 unless it has been identified as a Large Corporate Filer, then the tax will be $250,000.00. Delaware Franchise Tax calculations are prorated if a corporation’s authorized and/or issued shares change during the year. Technology and life sciences companies that choose to incorporate in Delaware must pay an annual introduction to total return swaps franchise tax.

Authorized Shares Method

1. Delaware would automatically show the higher tax due on their website using the authorized shares method.
2. If a company doesn’t have a physical presence in Delaware, there are professional registered agents available for hire; prices and levels of service vary.
3. The Assumed Par Value Capital Method in the above example results in a much lower tax ($26,800 vs. $170,165).
4. A refund might be available if the Assumed Par Value Capital Method was not considered.
5. This method calculates the tax based on the number of shares your corporation has authorized.

So if your Delaware corporation has a million authorized shares, your annual franchise tax will be approximately $7,500. Typically, this corporation is better off to use the second calculation option. This method calculates the tax based on the number of shares your corporation has authorized. Your corporation will owe an estimated $85 for each 10,000 shares authorized. The minimum tax when using this method is $175, and the maximum tax is $200,000.

A corporation generally has one year from the date of filing to amend a Delaware Franchise Tax return and claim a refund. A refund might be available if the Assumed Par Value Capital Method was not considered. Taxpayers owing $5,000.00 or more must pay estimated taxes in quarterly installments with 40% due June 1, 20% due by September 1, 20% due by December 1, and the remainder due March 1.