Delaware franchise tax: how much a startup really owes
Every Delaware company pays a yearly tax to the state, even with no revenue. For corporations the first notice often shows a frightening number. Usually it's the wrong calculation, not what you owe.
Deadlines
- Corporations: annual franchise tax report and franchise tax due March 1. The report has a $50 filing fee on top of the tax.
- LLCs: a flat $300 annual tax due June 1. LLCs don't file an annual report.
Paying late adds a $200 penalty plus interest of 1.5% per month.
Two ways to calculate a corporation's tax
Delaware lets corporations use whichever method gives the lower tax.
Authorized shares method
Based only on how many shares the company is allowed to issue. With 5,000 shares or fewer, the tax is the minimum, $175. A startup with 10,000,000 authorized shares gets a bill of tens of thousands of dollars under this method. That's the scary number on the first notice.
Assumed par value capital method
Based on authorized shares, issued shares and the company's total gross assets, as reported on Form 1120 Schedule L. For a young startup with few assets, this method usually gives the $400 minimum or close to it. To use it, you report issued shares and gross assets when you file.
What you need to file
- the number of issued shares at year-end;
- total gross assets at year-end, from your balance sheet;
- names and addresses of the directors and one officer;
- the principal place of business address.
Keeping your books up to date makes the gross assets figure a one-click answer.