What should I expect when I get a bill for the Delaware annual franchise tax?

The Franchise Tax is the fee imposed by the state of Delaware for the right or privilege to own a Delaware company. The tax has no bearing on income or company activity—it is simply required by the state of Delaware to maintain the good standing status of your company. The term “Franchise Tax” does not imply that your company is a franchise business.

The Franchise Tax for a Delaware limited liability company (LLC) or Delaware limited partnership (LP) is a flat annual rate of $300 as of July 1, 2022.

The Franchise Tax for a corporation is a little more complicated. It is based on your corporation type and the number of authorized shares your company has. The total cost of the Franchise Tax is comprised of an annual report fee and the actual tax due.

The annual report fee for a corporation is $50 and the minimum tax is $175 as of July 1, 2022, for a total of $225 per year. The maximum tax is up to $200,000.

There are two methods to calculate a maximum stock company’s Franchise Tax. They are:

• The Authorized Shares Method -- The state of Delaware uses this method to initially calculate your taxes – do not be alarmed if your initial bill is very high. This method is calculated based on the number of authorized shares. The calculation is as follows:
  • 5,000 shares or less: $175 (as of July 1, 2022)
  • 5,001 - 10,000 shares: $250 (as of July 1, 2022)
  • Additional 10,000 shares or portion thereof: add $85
  • The maximum annual tax is $200,000

• The Assumed Par Value Capital Method -- The calculation used for this method is more complex.  In order to utilize this filing method, you will need to provide the company’s total gross assets (as reported on Form 1120, Schedule L) and the total number of issued shares. Many times, the tax is then calculated to the minimum payment of $400 Franchise Tax.

The state of Delaware allows you to pay the lower of the two calculation methods. Therefore, if you receive a bill from Delaware for tens of thousands of dollars, it may be in your best interest to try calculating your Franchise Tax with the assumed par value capital method.

Don’t forget to add the $50 annual report fee to the Franchise Tax after it is calculated.