Every Delaware corporation, whether active or inactive, is required to file and pay an annual Delaware Franchise Tax by March 1st of each year to maintain good standing with the state. Navigating this process can be confusing, especially with the different tax calculation methods available and the potential for penalties if deadlines are missed.
Don’t get this confused with an income tax return- Delaware has both a Franchise Tax and an Income Tax that is only assessed on sales in Delaware, but remember that a Federal tax return filed with the IRS is still required even if a Delaware return is not. The Delaware Franchise Tax is a mandatory annual tax imposed by the state of Delaware on corporations incorporated within the state. It is not a tax on income, but a fee for the privilege of being incorporated in Delaware, one of the most business-friendly states in the U.S.
Every corporation registered in Delaware, whether domestic or foreign, active or inactive, is required to file and pay the Delaware Franchise Tax. This includes C-corporations, S-corporations, and nonprofit corporations. Importantly, LLCs and limited partnerships are not subject to the Delaware Franchise Tax, though they do have their own annual fees due on June 1st. Even corporations that are not conducting business or earning revenue must file the franchise tax to avoid penalties and maintain good standing. Failure to file could result in a loss of corporate status or substantial late fees.
The Delaware Franchise Tax and Annual Report are due by March 1st each year for corporations. Nonprofit corporations and LLCs have a different deadline: June 1st. If the tax is not filed and paid by the deadline, Delaware imposes significant penalties, which include a late fee of $200 and interest at 1.5% per month on unpaid balances. Missing the deadline can lead to the corporation falling out of good standing, potentially impacting the business’s legal status and ability to conduct operations.
Optic Tax provides educational consulting to help business owners understand Delaware Franchise Tax requirements and prepare to work effectively with their filing provider.
What Is the Delaware Franchise Tax?
The Delaware Franchise Tax is an annual fee imposed by the State of Delaware on corporations incorporated there. It is not an income tax, but a fee for maintaining a Delaware corporate charter.
Corporations incorporated in Delaware are generally required to file an annual franchise tax report whether or not the business is active.
LLCs and limited partnerships are not subject to the Delaware Franchise Tax but are typically required to pay separate annual fees.
Important Deadlines
The Delaware Franchise Tax and Annual Report are typically due March 1st each year for corporations.
LLCs and limited partnerships typically have annual fees due June 1st.
Late filings may result in penalties and interest and may affect a corporation’s good standing.
Understanding the Calculation Methods
Delaware Franchise Tax can typically be calculated using either:
- The Authorized Shares Method
- The Assumed Par Value Method
Understanding these calculation methods can help business owners work effectively with their filing provider and avoid unnecessary costs.
Optic Tax provides educational consulting to help business owners understand these calculation approaches and the information required for filing.
Get Started
Optic Tax provides educational consulting to help business owners understand Delaware Franchise Tax requirements and prepare to work effectively with qualified service providers.
Clients requiring franchise tax filing services should work directly with a qualified service provider.
Consultation Options
Consultations may include discussion of:
- Delaware Franchise Tax calculation methods
- Annual report requirements
- Filing deadlines
- Corporate status considerations
- Multi-state and cross-border implications
Questions?
Schedule a consultation to discuss your Delaware corporation and reporting considerations.