It’s that time of the year when Delaware corporations have to file and pay franchise taxes to the State. There are some tricks of the trade which you should take note of to make the process run smoother, some of which you might already know. Number 5 may be news to many filers.

1. Annual Filing Requirement

Delaware requires all corporations incorporated in the State to pay an annual franchise tax. All active Domestic Corporation Annual Reports and Franchise Taxes for the prior year are due annually on or before March 1st and are required to be filed online. Filing can be made here. The online application is available daily between 8:00 am and 11:45 pm Eastern Time. If drafting Corporation Annual Reports for a client, you can save the Corporation Annual Report and forward them the 15-digit session ID number to review and remit payment.

2. Calculating Franchise Taxes

The minimum tax is currently $175.00, using the Authorized Shares Method and the Minimum Tax using the Assumed Par Value Capital Method is $400.00 with a maximum tax of $200,000.00 for both methods. Taxes are assessed if the corporation is active in the records of the Division of Corporations anytime during January 1st through December 31st of the current tax year. Even if the corporation is no longer active it is required to file its final Corporation Annual Reports and Franchise Taxes before it can commence action to dissolve. There are two methods for calculating franchise taxes:

a.      Authorized Shares Method:

·        5,000 shares or less (minimum tax) $175.00.

·        5,001 – 10,000 shares – $250.00,

·        each additional 10,000 shares or portion thereof add $85.00

·        maximum annual tax is $200,000.00

·        Example, a corporation with 10,005 shares authorized pays $335.00($250.00 plus $85.00).

b.      Assumed Par Value Capital Method:

·        To use this method, you must give figures for all issued shares (including treasury shares) and total gross assets in the spaces provided in your Corporation Annual Report. Total Gross Assets shall be those “total assets” reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company’s fiscal year ending the calendar year of the report. The tax rate under this method is $400.00 per million or portion of a million. If the assumed par value capital is less than $1,000,000, the tax is calculated by dividing the assumed par value capital by $1,000,000 then multiplying that result by $400.00.

3. Accounting for Amendments

If an amendment changing your stock or par value was filed with the Division of Corporations during the year, issued shares and total gross assets within 30 days of the amendment must be given for each portion of the year during which each distinct authorized amount of capital stock or par value was in effect. The tax is then prorated for each portion of the year dividing the number of days the stock/par value was in effect by 365 days (366 leap year), then multiplying this result by the tax calculated for that portion of the year. The total tax for the year is the sum of all the prorated taxes for each portion of the year.

4. Consequences of Non-Payment

Failure to file the report and pay the required franchise taxes by the due date will result in a penalty of $200.00 plus 1.5% interest per month on tax and penalty. After two years of non-payment, the State will void the corporation and you will need to file a Certificate of Revival to reinstate.

5. Accurate Reporting

When using the Assumed Par Value Capital Method of calculating franchise taxes be sure to reflect accurate figures for total gross assets. The State may, and routinely does, request a copy of the U.S. Form 1120, Schedule L to verify assets. Failure to comply with the State’s request for a copy of the return can result in the corporate status being revoked.

By understanding these key points about paying corporate franchise taxes in Delaware, you can ensure that your corporation remains compliant with state regulations.