Top 10 Corporation & LLC Franchise Tax Questions

There are 5 comments left for Top 10 Corporation & LLC Franchise Tax Questions

Good afternoon! Tell me please, how can I close my LLC company, we have got a quarantines in Ukraine and I have not got opportunity to pay the taxes in the state Delaware . How much is it cost? Or is it possible to sell my company to another person and how to do it correctly?

Hello Novykh,

Thank you for reading our blog and for your question. We will be happy to have a specialists from our team reach out to provide a quote and answer your questions in detail.

Amount of franchise tax depends upon what? Is it not included in the business income tax?

If your company is an LLC or LP, the flat rate is $300 per year. For a corporation, the amount due will be between $225 and $200,000 annually. There are two methods for calculating this and you may choose whichever one works out to be less.

So I did a C-Corp 8 months ago because I thought I wanted investment, made no $, and now don't want the C-Corp. Delaware now wants another $400 because on the advice of others I authorized 10M shares for tax. Seems like I should just dissolve it ... should it go through bankruptcy so I don't have to pay that $400 tax on something that made nothing? Don't want Delaware to come after me for it. Man ... I was given terrible advice.

Hi Davers - You have a couple options when it comes to closing your Delaware Corporation. You can read more about this here - https://www.delawareinc.com/blog/dissolve-a-corporation-with-certificate-of-dissolution/

You can also contact us via phone, email, or live chat and our team will be happy to explain the options in detail.

I understand the normal procedure to review and apply the TOTAL ASSETS as found on Schedule L of the Form 1120. This is the standard procedure and referenced in the statutes you provided above. In its purest sense, a Parent Company is owed money from a subsidiary will show up in Total Assets and affect the Franchise Tax Calculations. In a consolidated return, it would be eliminated. At the end of the statute you provided, it says "at a value determined in accordance with GAAP" --- Thiis implies one could take a lessor amount than was is on the Federal Tax Return. Many times this debt is worthless, but stays on the books. Are companies truly penalized for these dead inter-company assets. Is there no relief?

James, here are the details regarding consolidating filing directly from the Delaware Law:

As used in subsections (a) and (b) of this section, the term "total assets" and the term "total gross assets" are identical terms and mean all assets of the corporation, net only of allowances for bad debts, accumulated depreciation, accumulated depletion, accumulated amortization of land and accumulated amortization of intangible assets.

Such total assets and total gross assets shall be those "total assets" reported to the United States on U.S. Form 1120 Schedule L, relative to the company's fiscal year ending in the calendar year prior to filing with the Secretary of State pursuant to this section. If such schedule is no longer in use, the Secretary of State shall designate a replacement. The Secretary of State may at any time require a true and correct copy of such schedule to be filed with the Secretary of State's office. If such schedule or its replacement reports on a consolidated basis, the reporting corporation shall submit to the Secretary of State the consolidating ending balance sheets which accompany such schedule as a reconciliation of its reported total assets or total gross assets to the consolidated total assets reported on the schedule.

Interests in entities which are consolidated with the reporting company shall be included within "total assets " and "total gross assets " at a value determined in accordance with generally accepted accounting principles.

I know that you cannot file a Consolidated Franchise Return like a Federal 1120 Consolidated Tax Return, but many companies have "INTERCOMPANY" loans, Due from Affiliates, etc. on the balance sheet of the Holding Company. I was told that one is supposed to exclude these INTERCOMPANY assets from TOTAL ASSETS, but cannot find an authoritative rule. Is this allowed? it seems like it should otherwise a Holding Company could pay a lot in taxes and then so would each subsidiary.

Here is what the state of Delaware law says about consolidation for FT reporting purposes:

The term "total assets" and the term "total gross assets" are identical terms and mean all assets of the corporation, net only of allowances for bad debts, accumulated depreciation, accumulated depletion, accumulated amortization of land and accumulated amortization of intangible assets.

Such total assets and total gross assets shall be those "total assets" reported to the United States on U.S. Form 1120 Schedule L, relative to the company's fiscal year ending in the calendar year prior to filing with the Secretary of State pursuant to this section. If such schedule is no longer in use, the Secretary of State shall designate a replacement. The Secretary of State may at any time require a true and correct copy of such schedule to be filed with the Secretary of State's office. If such schedule or its replacement reports on a consolidated basis, the reporting corporation shall submit to the Secretary of State the consolidating ending balance sheets which accompany such schedule as a reconciliation of its reported total assets or total gross assets to the consolidated total assets reported on the schedule.

Interests in entities which are consolidated with the reporting company shall be included within "total assets " and "total gross assets " at a value determined in accordance with generally accepted accounting principles.