Do I have to pay Delaware franchise tax?

Mar 7, 2024 | Compliance

More than 60% of Fortune 500 companies are incorporated in Delaware. Smaller businesses often choose to incorporate there, too. Many cite the state’s business-friendly court system and the good reputation of Delaware corporations as a motivating factor. 

But the fact that incorporating in Delaware saves a business on taxes is a bit of a myth. Yes, Delaware doesn’t have a sales tax, but where your business is registered has little bearing on sales tax liability. And there’s also the Delaware Franchise tax.

What is the Delaware Franchise Tax?

According to the Delaware Division of Revenue, businesses incorporated in Delaware but not doing business in Delaware are required to pay an annual franchise tax. (The franchise tax is different from Delaware’s corporate income tax, which is required of businesses doing business in the state.)

How much is the Delaware Franchise Tax?

The amount of franchise tax due varies depending on the corporation. However, the Delaware Division of Revenue provides some guidelines:

  • The minimum tax is $175 for corporations using the Authorized Shares method and $400 for corporations using the Assumed Par Value Capital Method
  • The maximum tax is $200,000 except any business identified as a “Large Corporate Filer,” in which case the maximum franchise tax is $250,000

Taxpayers who owe $5,000 or more per year are required to pay estimated payments. Those are due on a unique schedule:

  • Installment 1 of 40% of tax due is due on June 1
  • Installment 2 of 20% of tax due is due on September 1
  • Installment 3 of 20% of tax due is due on December 1
  • The remainder is due along with the March 1 filing 

There is also an Annual Report filing fee of $50 when filing and paying the franchise tax. 

Who doesn’t have to pay Delaware Franchise Tax?

Limited Partnerships (LPs), Limited Liability Companies (LLCs), and General Partnerships (GPs) formed in the state of Delaware are not required to file an annual report. Instead, they’re required to file a $300 annual tax due by June 1st of each year.

Exempt domestic corporations do not have to pay the franchise tax. These include:

  • Nonprofits
  • Civic organizations
  • Charitable and fraternal organizations
  • Organizations organized primarily or exclusively for religious or charitable purposes
  • Not-for-profit and none of it’s net earnings benefit an individual

These non-profit, charitable, religious and other organizations must still file an annual report due March 1.

Unsure if your business/organization must pay the Delaware franchise tax? We recommend checking with the Delaware Division of Taxation or to contact us at HOST for a consultation.

How do I file and pay Delaware Franchise Tax?

The Delaware franchise tax is due by March 1st every year. 

Returns are required to be filed electronically. 

The penalty for failing to file the franchise tax on time is $200 plus interest of 1.5% per month until the unpaid balance is paid. The same penalty applies to Limited Partnerships, Limited Liability Corporations, and General Partnerships that are required to pay the annual $300 tax.

Have questions about the Delaware franchise tax? Contact HOST for a consultation.