How to Calculate Gross Assets for Delaware Franchise Tax

Businesses incorporated in Delaware must file an annual Franchise Tax report. This tax is a fee for the privilege of existing as a legal entity in the state, regardless of whether the business conducts operations or generates revenue there. Accurately calculating this tax is important for compliance. The calculation often hinges on determining the company’s gross assets, a figure requiring careful attention to specific Delaware guidelines. Understanding how to correctly determine gross assets is a key step for Delaware corporations to fulfill their annual tax obligations.

Defining Gross Assets for Delaware Franchise Tax

For Delaware Franchise Tax purposes, “total gross assets” aligns with the “total assets” figure reported on a company’s U.S. Form 1120, Schedule L (Federal Return). This figure should reflect the company’s financial position as of its fiscal year ending in the calendar year prior to the Franchise Tax report. The Delaware Code states that “total assets” and “total gross assets” are identical for this calculation.

Gross assets include all corporate assets. This encompasses common categories such as:
Cash
Accounts receivable
Inventory
Property, plant, and equipment
Investments (e.g., brokerage accounts, money market funds, treasury accounts, cryptocurrency)
Real estate
Investments in or loans to foreign or domestic subsidiaries

The gross assets figure is calculated net of certain allowances. These include allowances for bad debts, accumulated depreciation, accumulated depletion, and accumulated amortization of land and intangible assets. Goodwill, an intangible asset, must also be included at the value recorded in the company’s books of account.

The Assumed Par Value Capital Method

The calculation of gross assets is particularly relevant for the Assumed Par Value Capital Method, one of two primary methods for determining Delaware Franchise Tax liability. This method often results in a lower tax obligation for companies, especially startups that have authorized many shares for future growth but possess relatively few assets. The state’s default Authorized Shares Method can lead to a higher tax, making the Assumed Par Value Capital Method a beneficial alternative.

The Assumed Par Value Capital Method involves a multi-step calculation integrating the gross assets figure. First, an “assumed par value” is determined by dividing total gross assets by the total number of issued shares. This assumed par value is then multiplied by the total number of authorized shares to arrive at the “assumed par value capital.” If the assumed par value capital is less than $1,000,000, the tax is a proportionate amount, with a minimum tax of $400.

For assumed par value capital amounts of $1,000,000 or more, the tax is assessed at a rate of $400 for each $1,000,000 or portion thereof. Any partial quotient from dividing the assumed par value capital by $1,000,000 is rounded up to the next whole number. Corporations with no par value stock are assigned a value of $100 per share for this calculation.

Preparing for the Calculation

Before calculating gross assets for Delaware Franchise Tax, specific financial documents and data points must be collected. The primary document required is the company’s U.S. Form 1120, Schedule L, for the fiscal year ending in the calendar year prior to the annual report filing. This federal tax form provides the “total assets” figure Delaware uses as its definition of gross assets.

If the U.S. Form 1120, Schedule L, is not finalized or is on extension, internal financial records like the balance sheet and general ledger can provide an accurate estimate of gross assets. If an estimate is used, an amended Annual Report can be filed later for a fee, but filing late incurs penalties.

The company’s stock ledger or corporate minute book is necessary to determine the total number of issued shares. The Certificate of Incorporation provides the total number of authorized shares and their par value, which are essential components for the Assumed Par Value Capital Method.

Executing the Calculation and Reporting

The process of calculating and reporting gross assets for the Delaware Franchise Tax involves identifying the correct figures and submitting them through the state’s online system. Companies reference their U.S. Form 1120, Schedule L, to identify the total gross assets as of their fiscal year-end. This figure is then used with the total issued shares to compute the assumed par value.

Next, the assumed par value is applied to the authorized shares to determine the assumed par value capital, following specific rules regarding par value and rounding for tax computation. After completing the calculation, the Delaware Franchise Tax report is filed online through the Delaware Corporations Information System. The system prompts for specific information, including the total gross assets and the number of issued shares.

While the state’s online system may initially display a tax calculation based on the Authorized Shares Method, it is the company’s responsibility to calculate its tax using the Assumed Par Value Capital Method. Companies should select this option if it results in a lower tax liability. The gross assets figure, along with other corporate details, is entered into the designated fields on the annual report form to finalize the filing and payment process.