How to Pay the Delaware Franchise Tax

The Delaware Franchise Tax is an annual tax imposed on most business entities incorporated or formed in Delaware. This tax is not based on income or business activity but is a fee for the privilege of maintaining a Delaware business charter. All entities registered in the state must pay this tax to remain in good standing, regardless of where they conduct business or if they generate any revenue. The requirements and deadlines differ based on the type of business entity.

Determining Your Tax Obligation

The deadline for payment varies by entity type. Corporations are required to file their annual report and pay the franchise tax by March 1st each year, with no extensions permitted. In contrast, LLCs, Limited Partnerships (LPs), and General Partnerships (GPs) have a due date of June 1st for their annual tax payment.

For corporations, the amount of franchise tax owed is determined by one of two calculation methods. The Authorized Shares method is the default and calculates the tax based on the total number of shares the corporation is permitted to issue. For example, a corporation with 5,000 authorized shares would owe a tax of $175, while one with 10,000 shares would owe $250. The minimum tax under this method is $175.

The second method, the Assumed Par Value Capital method, often results in a lower tax. To use this method, a corporation first calculates its “assumed par” by dividing its total gross assets by the total number of issued shares. This figure is then used to determine the “assumed par value capital,” which is taxed at a rate of $400 per million dollars. The minimum tax under this method is $400. In addition to the franchise tax, corporations must also pay a $50 Annual Report filing fee. LLCs and LPs pay a flat annual tax of $300.

Information and Documents Needed for Filing

You will need the entity’s 7-digit Delaware File Number, which is assigned by the Division of Corporations upon formation. This number is the primary identifier for all state filings and can be found on previous correspondence or by searching the state’s online business entity database.

For corporations, filing the franchise tax is done concurrently with the Annual Report, which requires additional details. For LLCs and LPs, which do not file an annual report, only the file number is needed to access the online payment portal.

To complete the corporate Annual Report, you will need:

• The corporation’s total gross assets and total number of issued shares
• The physical street address of the principal place of business (P.O. boxes are not accepted)
• The names and complete mailing addresses of all directors
• The name and address of one officer

Step-by-Step Guide to Filing and Paying

Delaware requires all corporations to file their Annual Report and pay franchise taxes electronically through the Division of Corporations’ online portal. To begin, you will navigate to the state’s website and enter your 7-digit File Number to access your entity’s record.

Once the report information is entered, the system will calculate the franchise tax owed. You can then proceed to the payment section. The portal accepts payments via credit card or ACH debit. However, corporations with a franchise tax liability of $5,000 or more are required to pay estimated taxes in quarterly installments. After submitting the payment, a confirmation page will appear, which should be saved for your records.

Consequences of Non-Payment

Failure to file and pay the Delaware Franchise Tax by the deadline carries consequences. A penalty of $200 is immediately assessed for late filings, and interest accrues at a rate of 1.5% per month on the outstanding tax and penalty balance.

Non-payment affects a company’s legal status. An entity that is not current on its franchise taxes will lose its “good standing” with the state. This loss of status can prevent the company from securing financing, entering into contracts, or obtaining certificates required for business operations in other jurisdictions.

If a corporation fails to pay its franchise taxes for one year, the Delaware Division of Corporations will void the entity’s charter. For LLCs and LPs, the certificate of formation is canceled after three consecutive years of non-payment. Reinstating a voided or canceled entity is a more complex and costly process than timely payment.