Updated on 10/6/17
Whether it was to fulfill a dream or purely for investment purposes, you established a Delaware company, and now you may have concerns regarding the maintenance of your business entity and what you are required to do for it on a regular basis.
One of the annual requirements is the filing of an annual Delaware Franchise Tax report. Don’t let either word—“franchise” or “tax”—frighten you; Harvard Business Services, Inc. is here to answer the Top 10 Franchise Tax questions.
1. What is Franchise Tax? The term may make it seem like you own a Chipotle or Pizza Hut franchise, but that is not the case at all. “Franchise Tax” is just the term the Delaware Secretary of State gave to the annual fee.
2. Do I have to pay the Franchise Tax? Yes. Every business entity that is formed in Delaware is required to pay Franchise Tax each year.
3. Do I still owe Franchise Tax if my company does not have any profits that year? Yes. Your company owes Franchise Tax every year, regardless of whether or not your company has started making money, opened a business bank account or filed a federal tax return. If your company is formed in the state of Delaware, you must pay the annual Franchise Tax.
4. Do I have to pay the tax if I just formed my company? Yes. The state levies the Franchise Tax in the same fashion as the IRS levies your income tax, meaning it is paid in arrears. So if you formed your company this year, the first Franchise Tax filing will be due the following year. You do not have to pay the Franchise Tax in the same year that your company was established.
5. Is the Franchise Tax the same as federal income tax? No. Delaware Franchise Tax is completely separate from your federal income tax filing. We will gladly provide assistance with your Delaware Franchise Tax filing; however, you will need to consult your CPA or Accountant for assistance with your federal income tax filing.
6. How much is my Franchise Tax? The amount due is dependent upon several variables. If your company is an LLC or LP, then the standard, flat rate is $300 per year. If your company is a corporation, then the amount due will be between $225 and $200,000 annually. The exception would be an exempt entity, such as a religious organization, church or foundation, which only has to file an annual report at a reduced rate of $25.
7. Why is the corporation Franchise Tax bill so high? Don’t fret—the vast majority of corporations pay somewhere between $225 and $400 for their Franchise Taxes each year. Click here for a calculator to generate an estimate on how much your taxes may be.
8. When is the Franchise Tax due? The fee for a corporation is due by March 1 of every year; the fee for an LLC or LP is due by June 1 annually.
9. What happens if I don’t pay by the deadline? The state of Delaware will assess a late penalty, plus interest, for all late filings. For a corporation, the late penalty is $125 plus 1.5% monthly interest; for an LLC, the late penalty is $200 plus 1.5% monthly interest.
10. How can I file and pay my company’s Franchise Tax? Just go to www.delawareinc.com/payft and complete the online form.