CORPORATE TRANSACTIONS & COMPLIANCE BLOG

Delaware Corporation Annual Report and Franchise Tax Time: Tips to Make the Process Easier

By: Colleen DeVries, COGENCY GLOBAL INC. on Thu, Dec 03, 2015
Delaware Annual Report

It’s that time of year again! Tax contacts for all domestic business and nonprofit Delaware corporations will begin receiving tax notices for their Delaware corporations’ annual report and franchise tax payments due March 1, 2016 for the 2015 tax year. Here are a few changes to be aware of and tips to make the process easier for you…

1. Be on the Lookout for the Tax Notice:
  • Delaware corporation tax notices are sent by the corporation’s Registered Agent beginning in December.
  • For the first time, Registered Agents will have the option to send the notice electronically (via e-mail) instead of sending the paper notice you may be used to receiving.
  • Make sure your Registered Agent has the correct contact at your company and e-mail address. (It is a good practice to immediately notify your Registered Agent any time during the year when there is a change in the contact information for your business entities.)
  • If your Registered Agent does not have your e-mail address, then it is required to send you the paper notice. Consider updating this for next year.
2. Delays Possible – File Early! The Delaware Division of Corporations recently launched a major computer system conversion.[1]
  • The conversion took place in September to upgrade the Division’s computer platform.
  • While the Division of Corporations has done extensive testing and the new system has launched successfully, based on the volume of Annual Report and Franchise Tax payments expected to be processed online between December and March 1st, there may be some delays.
  • Consider submitting your Annual Report and Franchise Tax payment online early to avoid issues that could be caused by any delays. The Division assesses a $125 penalty for not filing a completed Annual Report on or before March 1st and accrued interest of 1.5% per month is applied to any unpaid tax balance.
3. Review the Franchise Tax Amount Due: Determine if you qualify to pay a lesser amount.
  • The minimum tax is $175 for corporations using the Authorized Shares method and a minimum tax of $350 for corporations using the Assumed Par Value Capital Method. You are required to pay the lesser of the two amounts.
  • Delaware automatically calculates the tax based on the Authorized Shares Method.
  • It is always beneficial to check if you qualify to pay a lesser amount by accessing the Franchise Tax Calculator on the Delaware Secretary of State website: http://corp.delaware.gov/taxcalc.shtml.

Authorized Shares Method[2]  

For corporations having no par value stock, the authorized shares method will always result in the lesser tax.
  •  5,000 shares or less (minimum tax) $175
  • 5,001 - 10,000 shares - $250
  • each additional 10,000 shares or portion thereof add $75
  • maximum annual tax is $180,000

Assumed Par Value Capital Method[2]

To use this method, you must give figures for all issued shares (including treasury shares) and total gross assets in the spaces provided in your Annual Franchise Tax Report. Total Gross Assets shall be those "total assets" reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company's fiscal year ending the calendar year of the report.

Example: Delaware corporation with 1,000,000 authorized and issued shares, .01 par value and $10,000,000 in gross assets:

  • Authorized Share Method Calculation – Tax Due: $7,675
  • Assumed Par Value Capital Method – Tax Due: $3,500

In this example, the Delaware corporation pays less than ½ of the franchise tax by choosing the Assumed Par Value Capital Method . . . Don’t pay more than you need to! Use Delaware’s franchise tax calculator to see which method results in less tax!

4. What you need to know about required QUARTERLY tax payments:
  • Once you confirm that you have calculated the lowest tax amount due based on one of the two tax methods above, if you owe $5,000 or more, you are required to make your payments to Delaware quarterly in the following tax year.
  • The installment amounts are not equal. It is important to be aware that 40% will be due June 1, 20% due by September 1, 20% due by December 1, and the remainder due March 1.
  • An Annual Report will be due one time each year by March 1st.
  • No Annual Report filing is due when you make the quarterly payment in June, September and December.
  • Tax payments may be made by ACH credit, check or credit card.

While the e-mailing of the tax notices is new this year, most aspects of the Delaware corporation annual report and franchise tax process remain the same. Make sure to calculate your tax using both methods to ensure you aren’t paying more than you need to and keep in mind Delaware’s requirements for quarterly payments. Filing early is a good idea this year – especially if you have a deal closing before March 1st that requires a Good Standing Certificate. Follow these tips and you’ll get through the Delaware tax season with a lot less stress!

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[1] http://corp.delaware.gov/systemconversioninfo.shtml

[2] http://corp.delaware.gov/frtaxcalc.shtml  

 

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Annual Report Compliance, Delaware Corporate, UCC and Compliance