How to Calculate Franchise Tax Delaware: A Clear Guide
Franchise tax is a mandatory tax that all corporations incorporated in Delaware must pay annually. The amount of franchise tax depends on the type of corporation and the method of calculation used. The State of Delaware provides two methods of calculation for franchise tax, the Authorized Shares Method and the Assumed Par Value Capital Method.
The Authorized Shares Method is based on the number of authorized shares of stock a corporation has, while the Assumed Par Value Capital Method is based on a corporation’s assumed par value capital. The minimum franchise tax for the Authorized Shares Method is $175, while the minimum for the Assumed Par Value Capital Method is $400. The maximum franchise tax for both methods is $200,000, unless a corporation is identified as a Large Corporate Filer, in which case the tax is $250,000.
Understanding Franchise Tax in Delaware
Franchise tax is a mandatory tax that corporations incorporated in the state of Delaware must pay annually. This tax is based on the corporation’s authorized shares, par value, and gross assets. The tax is collected by the Division of Corporations of the Delaware Department of State.
The franchise tax is calculated using two methods: the Authorized Shares Method and the Assumed Par Value Capital Method. The Authorized Shares Method is a flat rate tax based on the number of authorized shares of the corporation. The Assumed Par Value Capital Method is based on the corporation’s gross assets and assumes a par value for the corporation’s authorized shares.
The minimum tax for the Authorized Shares Method is $225, while the minimum tax for the Assumed Par Value Capital Method is $400. Corporations that owe more than $5,000 in franchise tax are required to make estimated tax payments.
It is important to note that corporations incorporated in Delaware but not conducting business in the state are not subject to corporate income tax but are still required to pay franchise tax.
Corporations that fail to pay their franchise tax on time may be subject to penalties and interest. It is recommended that corporations seek the advice of a qualified tax professional to ensure compliance with Delaware’s franchise tax laws.
Calculating Franchise Tax for Delaware Corporations
Delaware corporations are required to pay an annual franchise tax to the state. The amount of tax due is based on the corporation’s authorized shares or assumed par value capital.
Authorized Shares Method
Under the authorized shares method, the amount of franchise tax due is based on the number of authorized shares of stock the corporation has. The tax rate is $175 per 1,000 shares up to a maximum of $200,000. This method is generally used by corporations with a small number of authorized shares.
To calculate the franchise tax due using the authorized shares method, multiply the number of authorized shares by the tax rate of $175 per 1,000 shares. For example, if a corporation has 10,000 authorized shares, the franchise tax due would be $1,750.
Assumed Par Value Capital Method
Under the assumed par value capital method, the amount of franchise tax due is based on the corporation’s assumed par value capital. The assumed par value is calculated by dividing the corporation’s total gross assets by the total number of shares of stock the corporation has issued. The tax rate is $400 per million dollars of assumed par value capital, rounded up to the nearest million if the assumed par value capital is over $1,000,000.
To calculate the franchise tax due using the assumed par value capital method, multiply the assumed par value capital by the tax rate of $400 per million dollars. For example, if a corporation has $5,000,000 in total gross assets and has issued 100,000 shares of stock, the assumed par value capital would be $50 per share. The franchise tax due would be $2,000 ($50 x 40).
It is important for corporations to accurately calculate their franchise tax due and file their annual report and franchise tax payment by the deadline to avoid penalties and interest charges.
Calculating Franchise Tax for Delaware LLCs
Delaware LLCs are required to pay an annual franchise tax, which is a flat fee based on the company’s income or the value of its authorized shares. LLCs are not required to file Annual Franchise Tax reports with the Division of Corporations, but they must pay the $300 yearly tax on or before June 1st of each year.
The franchise tax calculation for Delaware LLCs is relatively simple. The LLC must pay a flat fee of $300 annually. There is no additional tax based on income or the value of authorized shares. This tax must be paid by June 1st of each year to avoid any late fees or penalties.
It is important to note that LLCs may also be subject to other taxes, such as state income tax or federal taxes, depending on their business structure and location. LLCs are generally considered pass-through entities, which means that the profits and losses of the business are passed through to the owners and are reported on their personal tax returns.
In summary, calculating franchise tax for Delaware LLCs is a straightforward process. LLCs must pay a flat fee of $300 annually by June 1st of each year. It is important to consult with a tax professional to ensure compliance with all tax laws and regulations.
Filing Requirements and Payment Procedures
Annual Report Submission
All corporations incorporated in Delaware are required to file an annual report with the Delaware Division of Corporations. The annual report is due on or before March 1st of each year. Failure to file the annual report by the due date will result in a penalty fee of $200.
The annual report must include the following information:
- The corporation’s name and address
- The names and addresses of all directors and officers
- The corporation’s registered agent
- The number of authorized shares and the par value of each share
- The corporation’s gross assets in Delaware
Payment Deadlines
Delaware franchise tax payments are due on or before June 1st of each year. Failure to pay the franchise tax by the due date will result in a penalty fee of $200.
Online Payment Options
Delaware offers online payment options for franchise tax payments. Corporations can make payments using a credit card or an electronic check. To make a payment online, corporations must have their franchise tax account number and the amount due.
Corporations can also mail their franchise tax payments to the Delaware Division of Corporations. Payments must be made payable to the “Delaware Division of Corporations” and mailed to the following address:
Delaware Division of Corporations
Franchise Tax
P.O. Box 898
Dover, DE 19903
Corporations should include their franchise tax account number on the check or money order.
Penalties for Late Payment or Non-Compliance
Delaware imposes penalties for late payment or non-compliance with franchise tax requirements. The penalties are designed to encourage timely payment and compliance with the tax laws.
If a corporation fails to file its annual report by March 1st, it will be assessed a penalty of $200.00. In addition, the corporation will be charged interest at a rate of 1.5% per month on any unpaid tax balance. The interest will continue to accrue until the tax and penalty are paid in full.
For corporations that use the Authorized Shares method, the minimum tax is $175.00. For corporations using the Assumed Par Value Capital Method, the minimum tax is $400.00. The maximum tax for all corporations using either method is $200,000.00 unless the corporation is identified as a Large Corporate Filer, in which case the tax will be $250,000.00.
For alternative entities, such as LLCs, LPs, and GPs, the annual taxes are assessed if the entity is active in the records of the Division of Corporations anytime during January 1st through December 31st of the current tax year. Failure to pay the required annual taxes will result in a penalty of $200.00 plus 1.5% interest per month on tax and penalty. There is no proration on alternative entity taxes.
It is important for corporations and alternative entities to comply with Delaware’s franchise tax requirements to avoid penalties and interest charges. If a corporation or alternative entity is unable to pay the tax and penalty in full, it may be possible to negotiate a payment plan with the Division of Revenue.
Tax Deductibility and Credits
When it comes to franchise tax in Delaware, there are no deductions or credits available to corporations. This means that the amount paid in franchise tax cannot be reduced by any expenses or credits. The tax is calculated based on the corporation’s authorized shares or assumed par value capital, and the amount due must be paid in full.
It is important to note that franchise tax is not the same as income tax. Franchise tax is a fee paid for the right to do business in Delaware, while income tax is paid on the corporation’s profits.
While there are no deductions or credits available for franchise tax, corporations may be able to deduct the amount paid as a business expense on their federal tax return. This can help to reduce the corporation’s overall tax liability.
It is recommended that corporations consult with a tax professional to ensure that they are properly accounting for franchise tax and taking advantage of any available deductions or credits.
Professional Assistance and Resources
Calculating franchise tax in Delaware can be a complex process, and sometimes it is best to seek professional assistance to ensure that you are meeting all the requirements and filing correctly. There are several resources available for business owners to get help with this process.
One option is to hire a tax professional who is familiar with Delaware franchise tax laws. These professionals can help you navigate the process, ensure that you are filing correctly, and help you minimize your tax liability. It is important to choose a tax professional with experience in Delaware franchise tax laws to ensure that you are getting accurate advice.
Another option is to use online resources. The State of Delaware provides a Franchise Tax bankrate piti calculator on their website that can help you estimate your franchise tax liability. Additionally, many accounting software programs have built-in tools to help businesses calculate and file their franchise taxes.
Business owners can also contact the Delaware Division of Corporations for assistance. The Division of Corporations has a customer service team that can answer questions and provide guidance on the franchise tax process.
It is important to note that while these resources can be helpful, business owners are ultimately responsible for ensuring that they are meeting all the requirements and filing correctly. Seeking professional assistance can be a good way to ensure that you are on the right track, but it is still important to have a basic understanding of Delaware franchise tax laws.
Frequently Asked Questions
What are the steps to calculate Delaware franchise tax for my corporation?
To calculate the Delaware franchise tax for your corporation, you need to determine the appropriate method of calculation based on your corporation’s structure, and then determine the gross assets or par value capital of your corporation. You can use the Franchise Tax Calculator provided by the State of Delaware to estimate your tax liability.
How do I determine the gross assets for Delaware franchise tax purposes?
The gross assets for Delaware franchise tax purposes are the total assets of your corporation, including real estate, tangible personal property, and intangible personal property. You can determine the gross assets of your corporation by reviewing your financial statements or consulting with your accountant.
What is the deadline for paying Delaware franchise tax?
The deadline for paying Delaware franchise tax is March 1st of each year. If you fail to pay your franchise tax by the deadline, you may be subject to penalties and interest.
Can I pay my Delaware franchise tax online, and if so, how?
Yes, you can pay your Delaware franchise tax online through the State of Delaware’s online payment portal. You will need your corporation’s file number and tax year to make a payment.
Are there different methods for calculating Delaware franchise tax, and which should I use?
Yes, there are different methods for calculating Delaware franchise tax, including the Authorized Shares Method and the Assumed Par Value Capital Method. The appropriate method of calculation depends on your corporation’s structure and the number of authorized shares and issued shares. You can use the Franchise Tax Calculator provided by the State of Delaware to estimate your tax liability.
Does filing an Annual Report in Delaware also satisfy franchise tax requirements?
No, filing an Annual Report in Delaware does not satisfy franchise tax requirements. You must file a separate franchise tax report and pay the appropriate tax liability by March 1st of each year.