Top 10 Corporation & LLC Franchise Tax Questions
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.
- What is Franchise Tax?
The term may seem like it only applies if 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.
- 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.
- 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.
- Do I have to pay the tax if I just formed my company?
It depends. 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 calendar 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.
- 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.
- 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.
- Why is my corporation Franchise Tax bill so high?
Don’t fret—the vast majority of corporations pay somewhere between $225 and $450 for their Franchise Taxes each year. You can use our calculator to estimate your franchise tax.
- 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.
- 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 $200 plus 1.5% monthly interest; for an LLC, the late penalty is $200 plus 1.5% monthly interest.
- How can I file and pay my company’s Franchise Tax online?
Just go to www.delawareinc.com/payft and complete the form.
Next: Common Franchise Tax Mistakes
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
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There are 5 comments left for Top 10 Corporation & LLC Franchise Tax Questions
NOVYKH SERHII said: Tuesday, April 6, 2021Good 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?
HBS Staff replied: Wednesday, April 7, 2021Hello 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.
Nationwide Tax Consulting said: Monday, August 12, 2019Amount of franchise tax depends upon what? Is it not included in the business income tax?
HBS Staff replied: Monday, August 12, 2019If 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.
davers said: Tuesday, February 26, 2019So 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.
HBS Staff replied: Wednesday, February 27, 2019Hi 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.
James Cardwell said: Friday, August 3, 2018I 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?
HBS Staff replied: Tuesday, August 14, 2018James, 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.
Jay said: Tuesday, February 27, 2018I 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.
HBS Staff replied: Monday, March 5, 2018Here 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.