How to Calculate Your Delaware Franchise Tax

How to Calculate Your Delaware Franchise Tax

bigstock_Business_Law_6758927If you have a Delaware corporation, your annual report and franchise tax payment is due by March 1st.  Delaware requires these reports to be filed electronically.   The minimum franchise tax is $175 (increased from $75 on July 1, 2014) and the maximum franchise tax is $180,000.

If you’ve recently established a Delaware corporation and visit the state’s website to complete your filing, you’ll notice that the state has conveniently calculated the amount you owe.   You’ll likely see an astronomical number, don’t freak out.

There are, in fact,  two methods that you can use to calculate the amount of Delaware franchise tax due for your corporation: (1) the Authorized Shares Method; and (2) the Assumed Par Value Capital Method.   These calculation methods result in vastly different amounts due.

The default payment amount listed on your notification is set by Delaware using the Authorized Shares Method, which will almost always result in a shockingly high amount for startups and other companies with limited assets.  Here’s an example of how the two calculation methods can play out:

Authorized Shares Method

The franchise tax rate for the Authorized Shares Method is as follows:

  • 5,000 authorized shares or less (minimum tax) = $175
  • 5,001 – 10,000 authorized shares = $250
  • and for each additional 10,000 authorized shares or portion thereof = add $75
  • maximum annual tax is $180,000

Now let’s assume that your corporation has 15 million authorized shares with a par value of .01 per share, 10 million issued shares, and $1.2 million in gross assets.

You’re going to owe $250 for your first 10,000 shares.  To figure out how much you owe for the remaining 14,990,000 shares, just divide that number by 10,000 and you’ll be left with 1,499.  Then multiply that number by 75, and you’ll get 112,425.  Then add 250, and you’ll discover that the total amount you owe will be $112,675.

Assumed Par Value Capital Method 

Under this example, using the same corporation above having 15 million authorized shares of stock with a par value of $0.01, gross assets of $1.2 million and issued shares totaling 10 million, the Assumed Par ValueMethod of calculation would result in a franchise tax due of only $700.

If you’re terrible at math, there is a helpful “Franchise Tax Calculator” spreadsheet provided by Delaware to assist in estimating your franchise taxes. Note, in addition to the franchise tax, there is also a $50 filing fee for the annual report.

Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.
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