It’s that time of year again. In the U.S. state of Delaware, domestic for-profit, nonprofit and benefit corporations should have received notices of franchise taxes and annual reports due for the 2020 tax year from their registered agent.
To help your annual report filing process go smoothly, we’ve got some answers to the most frequently asked questions that we receive at 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 Monday, 1st March 2021. The Franchise Tax Department will be available to assist on Saturday, 27th February by phone, email and chat from 8 am to 4 pm.
Keep in mind that this franchise tax payment due is for the prior (2020) 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 1st March.
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 authorised shares, the 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 it must be executed by an authorised signer.
Q: WHO CAN SERVE AS THE AUTHORISED SIGNER OF THE ANNUAL REPORT?
The annual report must be signed by the corporation's president, secretary, treasurer or other duly authorised officer, or by any of its directors. If filing an initial report, any incorporator can be an authorised signer in the event that the board of directors has not yet been elected. Keep in mind that the 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: the Authorised Shares method and the Assumed Par Value Capital Method. The corporation pays the lesser of the two amounts, as calculated below.
Authorised 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 maximum 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 in 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 an annual franchise tax calculator that helps estimate what a corporation may owe using either the Authorised Shares method or Assumed Par Value method. While a 2020 calculator is not available on the Delaware Secretary of State website, we have confirmed that the 2018 calculator can be used for the 2020 tax year.
Q: ARE THERE ANY ADDITIONAL FEES 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 alternative tax method available.
Q: WHAT QUALIFIES A DELAWARE CORPORATION AS A ‘LARGE CORPORATE FILER’?
Title 8 Section 503 of the Delaware Code includes provisions for large corporate filers. This section 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 instalments with 40% due by 1st June, 20% due by 1st September, 20% due by 1st December and the remainder due by 1st March. 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 1st March, 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: 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 MISS THE 1ST MARCH DEADLINE?
Corporations that do not file an annual report by 1st March are given a $200 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 up to 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 MOST IMPORTANT QUESTION, HOW DO I FILE MY CORPORATION’S ANNUAL REPORT AND MAKE THE FRANCHISE TAX AND FEE PAYMENT?
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 for filing your report and paying 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 from 8:30 AM to 4:00 PM ET. If you require special accommodations, phone the Division of Corporations Franchise Tax Section on (US) (302) 739-3073.
- File electronically utilising 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.
*If COGENCY GLOBAL is your registered agent, contact us to gain access to our online Delaware Annual Report filing system.
Q: I FILED MY ANNUAL REPORT AND NOTICED AN ERROR. CAN I FILE AN AMENDED REPORT?
Yes, you can file an amended annual report for $50. Delaware allows one year to amend the annual report.
Have any more questions about Delaware annual reporting and corporate tax obligations?
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.