It’s that time of year again. Delaware domestic for-profit and nonprofit corporations should have received notices of franchise taxes and annual reports due for the 2018 tax year from their registered agent.
To help your annual report filing process go smoothly – especially following the 2017 amendments to Title 8 Section 503 – here are some answers for the frequently asked questions we receive this time of year.
Q: What is due and when?
Delaware domestic corporations must file a fully completed annual report and pay both the annual report filing fee and franchise tax by March 1st, 2019. Keep in mind this franchise tax payment due is for the prior (2018) calendar year. Exempt corporations do not have to pay franchise tax but are still required to file a completed annual report and pay the report filing fee.
The report must be filed online and received by the Division of Corporations on or before March 1st.
Q: What information is required on the annual report?
Your corporation’s Delaware annual report is pre-populated with certain information including the exact legal name of the entity, total number of authorized shares, class and par value of the shares and a breakdown of the franchise tax and fees due. The annual report is also required to include the principal business address and phone number, the names and addresses of all directors, the name and address of one officer and must be executed by an authorized signer.
Q: Who can serve as the Authorized Signer of the annual report?
The annual report must be signed by the corporation's president, secretary, treasurer or other duly authorized officer, or by any of its directors. If filing an initial report, any incorporator can be an authorized signer in the event the board of directors have not yet been elected. Keep in mind, that incorporator may not sign subsequent annual reports.
Q: How is my Delaware franchise tax calculated?
There are two methods to calculate a Delaware corporation’s franchise tax: Authorized Shares method and Assumed Par Value Capital Method. The corporation pays the lesser of the two amounts, as calculated below.
Authorized Shares Method
If a corporation has 5,000 shares or less, it pays the minimum tax of $175. For corporations with 5,001 to 10,000 shares, the tax is $250. For corporations with over 10,000 shares, the tax is $250 plus $85 for each additional 10,000 shares (or portion thereof) to a max annual tax of $200,000.
Assumed Par Value Method
To use this method, a corporation must report its total number of issued shares (including treasury shares) and total gross assets listed on Schedule L (Form 1120) for the company’s fiscal year ending the calendar year of the report.
For corporations using the Assumed Par Value Method, the minimum tax is $400. The tax rate using this method is $400 per $1,000,000 (or part thereof) of assumed par value capital, with a maximum annual tax of $200,000.
The Delaware Division of Corporations provides additional information on calculating the tax due, including a franchise tax calculator that helps estimate what a corporation may owe using either the Authorized Shares method or Assumed Par Value method.
Q: Are there any additional fees required to be paid when filing my corporation’s Delaware Annual Report?
The Delaware Secretary of State charges an additional annual report filing fee of $50. Exempt corporations pay $25 to file an annual report.
Q: How do I calculate the franchise tax for non-exempt non-stock corporations?
All non-exempt non-stock corporations pay a franchise tax of $175. There is no alternate tax method available.
Q: What qualifies a Delaware Corporation as a ‘Large Corporate Filer’?
Effective for the tax year beginning on January 1st, 2017, Title 8 Section 503 includes provisions for large corporate filers. The legislation provides that in each calendar year, the Secretary of State shall compile a list of corporations that had:
- Class or series of stock listed on a national securities exchange and reported in financial statements.
- Consolidated annual gross revenues equal to or greater than $750 million or consolidated assets equal to or greater than $750 million, with consolidated gross revenue of not less than $250 million and consolidated assets of not less than $250 million.
These large corporate filers pay an annual franchise tax of $250,000 instead of $200,000 and are required to pay their franchise taxes on a quarterly basis.
Q: My corporation has to pay franchise taxes quarterly? How does that work?
Taxpayers owing $5,000 or more pay estimated taxes in quarterly installments with 40% due June 1st, 20% due by September 1st, 20% due by December 1st and the remainder due March 1st. Taxpayers subject to the quarterly payment requirement will receive a reminder notice each quarter.
Note that only one Delaware annual report is required to be filed by March 1st, even for corporations paying quarterly franchise taxes.
Q: If the tax amount is large, can payment be made by wire to the Delaware Secretary of State?
A corporation may pay its franchise taxes directly via Delaware SOS ACH. This method must be used for all transactions over $5,000. If you prefer to make your payment via wire transfer, check with your registered agent since most professional registered agent companies will accept the funds by wire, pay the Delaware Secretary of State and follow up with evidence of such payment on behalf of your corporation.
Q: What happens if I missed the March 1st deadline?
Corporations that do not file an annual report by March 1st are assessed a $125 penalty plus interest at 1.5% per month applied to any unpaid tax balance, in addition to the original tax and annual report fee.
It is important to note that Delaware will not issue Good Standing Certificates for corporations that have not met the annual report filing requirements. After two years of non-filing and non-payment, the corporation’s Certificate of Incorporation will be revoked.
Q: The domestic Delaware corporation I formed never engaged in business. Do I still have to file an annual report and pay the tax?
Yes. You are still required to file the annual report and pay the franchise tax even if the corporation never engaged in business.
Q: What happens if the corporation merges or dissolves before the end of the calendar tax year?
Delaware requires that annual report(s) be current prior to all dissolution and merger filings. At the time of dissolution or merger, all franchise taxes must be paid through the date of the filing of the Certificate of Dissolution or Merger with the Delaware Secretary of State.
This lesser known requirement can be quite frustrating when it delays time-sensitive filings. We recommend identifying the tax due in these cases well in advance of the date of filing for a dissolution or merger. A professional registered agent company can assist with identifying total taxes due on any given date when you are handling a merger or dissolution.
Q: The final, most important question: How do I file my corporation’s annual report and make the payment(s)?
Delaware now requires that all annual franchise tax reports be filed electronically and accepts payment only in U.S. dollars drawn on U.S. banks. You have the following options to file your report and pay taxes and fees:
- File electronically with the Delaware Division of Corporations. Your payment options through the state’s site include ACH Debit (required for transactions over $5,000), Visa, MasterCard, Discover or American Express. Live support is available online weekdays 8:30 AM to 4:00 PM ET. If you require special accommodations, contact the Division of Corporations Franchise Tax Section at (302) 739-3073.
- File electronically utilizing your registered agent’s online system. These systems usually store the information needed to complete the report so that you will not have to re-enter it in subsequent years. (You have to input all of the information each year when filing directly with the state.) The payment options at registered agent sites vary, so check in advance to ensure your preferred payment option is offered.
Have more questions about Delaware annual reporting and corporate tax obligations? Let us know!
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.