What Are Gross Assets for Delaware Franchise Tax?

The Delaware Franchise Tax is an annual levy imposed on corporations incorporated within the state, regardless of whether they conduct business in Delaware or generate revenue. A key element in calculating this tax liability involves determining a corporation’s “gross assets.” This figure plays a significant role in one of the primary methods used to compute the tax.

Understanding Gross Assets

Gross assets, in the context of the Delaware Franchise Tax, refer to the total value of a corporation’s assets before any liabilities are subtracted. This figure is a fundamental component for one of the two methods used to calculate the tax, specifically the Assumed Par Value Capital Method. The state uses this gross figure to assess a corporation’s overall financial scale and capacity. The inclusion of all assets, without netting out debts or obligations, provides a comprehensive picture of a company’s resources.

Determining Gross Asset Value

For the purpose of the Delaware Franchise Tax, the total gross assets are defined as the “total assets” reported on the U.S. Form 1120, Schedule L (Federal Return). This figure should correspond to the corporation’s fiscal year ending in the calendar year of the report. Therefore, for a calendar-year taxpayer, the gross assets reported for the March 1 franchise tax filing would align with the Form 1120, Schedule L from the prior year’s tax return.

Corporations must use Generally Accepted Accounting Principles (GAAP) to determine the value of their gross assets. If the federal income tax return is on extension, other reliable financial data can be used to determine the total gross assets. The valuation date for gross assets is typically the last day of the corporation’s fiscal year.

Specific Asset Inclusions and Exclusions

When calculating gross assets for the Delaware Franchise Tax, virtually all assets reported on a company’s balance sheet are included. Common examples of assets that are part of this calculation include cash and cash equivalents, accounts receivable, inventory, and property, plant, and equipment. Other investments, such as marketable securities, and even intangible assets like goodwill, are also typically included. The valuation of goodwill should be consistent with its valuation in the corporation’s books of account.

Assets held by subsidiaries that are consolidated with the reporting company must also be included in the total gross assets. These intercompany interests should be valued in accordance with GAAP.

Applying Gross Assets to the Franchise Tax Calculation

The determined gross asset value is directly applied in the Assumed Par Value Capital Method, one of two ways to calculate the Delaware Franchise Tax. This method is often beneficial for corporations with many authorized shares but limited assets, as it can result in a lower tax liability compared to the Authorized Shares Method. To use this method, corporations must provide their total gross assets and issued shares on their annual franchise tax report.

First, the total gross assets are divided by the total number of issued shares to arrive at an “assumed par value.” This assumed par value is then multiplied by the total number of authorized shares to determine the “assumed par value capital.” The assumed par value capital, rounded up to the nearest million, is then used to calculate the tax, typically at a rate of $400 per million or portion thereof. The minimum tax under this method is $400, and the maximum is $200,000.