What are Delaware Franchise Taxes?
Delaware Franchise Taxes are fees charged by the state of Delaware for owning a Delaware company and are due March 1, 2021.
All Delaware corporations have to pay Delaware Franchise Taxes. If you’ve received a notice from Delaware that you own thousands in Delaware Franchise Taxes, do not panic. There are two different ways of calculating Delaware Franchise Taxes, and Delaware defaults to the one that is usually far more expensive than the other.
There are two ways to pay your Delaware Franchise Taxes: Assumed Par Value Method and Authorized Shares Method. This article walks you through using Pulley to re-calculate your Delaware Franchise Tax to the lower cost option.
Assumed Par Value Method (recommended)
The assumed par value method is typically less expensive for most startups. This method calculates how much tax is due based on a formula that considers number of shares authorized, shares outstanding (issued to stakeholders), and your company’s gross assets. The tax rate is roughly $400 per $1m of assets.
You need two pieces of information to calculate taxes via this method:
Total gross assets
Shares issued per share class. Additional detail on calculating taxes via the assumed par value method can be found here.
To pay taxes using the Assumed Par Value Method, go to the Delaware Franchise Tax website and watch the video below:
Paying DE franchise taxes demo
Authorized Shares Method (more expensive)
Delaware’s default method of calculating annual franchise tax based only on how many shares a company has authorized. This method is only recommended if your company has authorized fewer than 100,000 shares.
Typically more expensive
Result in lower taxes if the number of authorized shares is very low: generally 100,000 shares or less. This is not the case for most startups.
If the number of authorized shares is in the millions, we recommend the "Assumed Par Value Method" above.
By way of illustration for how quickly this grows, a company with 5,000,000 authorized shares will owe $37,675.00; a company with 10,000,000 will owe $75,175.00
You need the number of authorized shares to calculate taxes via this method, which can be found by selecting “Share Classes” on the left navigation.
Authorized Shares are displayed in the right-most column.
The estimated taxes can be calculated by inputting your authorized share number into the “2018 FRANCHISE TAX CALCULATOR” found here.
How do I pay my DE franchise taxes?
Go to https://icis.corp.delaware.gov/ecorp/logintax.aspx?FilingType=FranchiseTax and enter in [your DE file number] as your business ID
Click "file annual report" in the right column
Type in [# Issued Shares] in the "Issued Shares" box
Ask your tax advisor what to put for "Gross Assets" - found on your Form 1120 tax form
Select re-calculate tax, fill out the rest of the form, and pay. You can also follow along with this short video on how to click through everything
Pulley is not responsible for remitting or calculating Delaware Franchise Taxes. This article is provided only for informational proposes. Pulley does not provide tax, accounting, or legal advice. We recommend consulting with your tax and legal advisors regarding the calculation and payment of Delaware Franchise Taxes.