Corporations legally organized in Delaware must file the franchise tax and annual report by March 1. The Delaware report must be filed online. This particular tax does not apply to legal entities other than corporations, i.e., LLCs, LLPs, etc., or corporations legally organized outside of Delaware. The franchise tax applies to corporations taxed as either a C corporation or an S corporation for federal income tax purposes.
Exemptions to the Delaware franchise tax may apply. Notably, corporations legally organized in Delaware that are exempt from federal income tax under Section 501(c) of the U.S. Internal Revenue Code are not required to pay the franchise tax but must file an annual report. Other exemptions also may apply.
The amount of franchise tax due can vary based on the number of shares issued and/or authorized by the corporation or the assumed par value of the shares. There is a minimum tax of $175 and a minimum filing fee of $50; thus, there is a minimum Delaware franchise tax and annual report payment total of $225 a year for Delaware domestic corporations.
A penalty in the amount of $200 is imposed for late filings, as well as interest at the rate of 1.5 percent a month on the tax due. Failure to file can result in the suspension of a corporation’s status in Delaware, which can prevent the taxpayer from engaging in future transactions.
If you or your client would like assistance filing the Delaware annual report and paying the franchise tax due by March 1, please reach out to BKD’s State & Local Tax Services division or submit the Contact Us form below.