The Delaware franchise tax is an annual fee every corporation incorporated in the state must pay for the privilege of holding a Delaware charter, whether or not the company does business or earns any revenue. Corporations pay between $175 and $200,000 a year, or up to $250,000 if classified as a Large Corporate Filer. LLCs, limited partnerships, and general partnerships formed in Delaware pay a flat $300 instead. The obligation begins the day the entity is formed and ends only when it is formally dissolved.
Who Owes the Tax
The rules split cleanly by entity type, and the amount and deadline change with each.
Delaware Corporations
Every corporation incorporated in Delaware owes franchise tax each year, regardless of where it operates or whether it earns revenue.1Delaware Division of Corporations. Annual Report and Tax Information That covers C corporations, S corporations, and publicly traded companies. The obligation exists from the moment the certificate of incorporation is filed and continues until the corporation is dissolved or its charter is voided for non-payment.
LLCs, LPs, and General Partnerships
LLCs, limited partnerships, and general partnerships formed or registered in Delaware do not pay the traditional franchise tax. They owe a flat $300 annual tax due on or before June 1 each year, and they are not required to file an annual report.2Delaware Division of Corporations. LLC/LP/GP Franchise Tax Instructions The $300 applies to both domestic and foreign entities of these types. If an LLC fails to pay for three consecutive years, the Secretary of State cancels its certificate of formation.3Justia Law. Delaware Code Title 6, Chapter 18, Section 18-1108 – Cancellation of Certificate of Formation for Failure to Pay Taxes
Foreign Corporations Registered in Delaware
Corporations formed in another state but registered to do business in Delaware do not owe franchise tax. They must file an annual report and pay a $125 filing fee by June 30 each year, and missing that deadline adds a $125 penalty.4Delaware Division of Corporations. Annual Report and Tax Instructions
How Corporations Calculate the Tax
Delaware corporations have two calculation methods, and the state automatically bills you under whichever produces the lower figure.5Delaware Division of Corporations. How to Calculate Franchise Taxes There is one important condition: to use the second method, you have to submit the supporting financial data with your annual report. Leave it out and the state defaults to the first method, which often produces a much larger bill.
Authorized Shares Method
This method looks only at how many shares the corporation is authorized to issue, not how many have actually been issued.
- 5,000 shares or fewer: $175 (the minimum tax)
- 5,001 to 10,000 shares: $250
- Each additional 10,000 shares or portion thereof: add $85
The tax caps at $200,000, or $250,000 for Large Corporate Filers.5Delaware Division of Corporations. How to Calculate Franchise Taxes A corporation authorized to issue 10 million shares would owe roughly $85,000 under this method even if only a handful were actually issued. The gap between authorized and issued shares is what makes the second method matter.
Assumed Par Value Capital Method
This method looks at both issued shares and the corporation’s total gross assets, meaning the figure reported on the federal return (Form 1120, Schedule L) for the fiscal year ending in the prior calendar year.6Delaware Division of Corporations. Frequently Asked Tax Questions
Divide total gross assets by issued shares to get an assumed par value per share. Multiply that by total authorized shares. The tax is $400 for each $1 million of that result, or any fraction of $1 million.4Delaware Division of Corporations. Annual Report and Tax Instructions Minimum tax is $400 and the same $200,000 (or $250,000) cap applies.
This method usually helps corporations that authorized many shares but hold modest assets. A startup with 10 million authorized shares and $500,000 in assets will pay far less this way. Just remember: you must supply the financial data at filing time, or the state calculates on authorized shares alone.
When the Tax Is Due
Delaware corporations must file an annual franchise tax report and pay the tax by March 1 each year. The report lists the directors and the signing officer. Filing is required even for exempt corporations that owe no tax; the filing fee is $25 for exempt corporations and $50 for everyone else, on top of any tax owed.1Delaware Division of Corporations. Annual Report and Tax Information
Reports must be filed online through the Division of Corporations portal, with payment by credit card, electronic check, or wire transfer. The annual tax notification goes to the corporation’s registered agent, so keeping that agent’s information current matters.7State of Delaware. Franchise Taxes – Division of Revenue
Quarterly Estimated Payments Above $5,000
Any corporation expecting to owe $5,000 or more in franchise tax for the current year cannot wait until March 1. It has to pay on this quarterly schedule:
- June 1: 40% of the estimated annual tax
- September 1: 20%
- December 1: 20%
- March 1 of the following year: the remaining balance
The threshold is low enough that a mid-size corporation owing $8,000 is on the same schedule as one owing $200,000.7State of Delaware. Franchise Taxes – Division of Revenue
Penalties and What Happens If You Don’t Pay
Missing the March 1 deadline triggers an immediate $200 penalty plus interest of 1.5% per month on the unpaid tax and penalty combined. That interest compounds quickly. A $10,000 tax bill left unpaid for a year would accumulate roughly $1,800 in interest on top of the $200 penalty.4Delaware Division of Corporations. Annual Report and Tax Instructions
Leave it unpaid for a full year and the consequences escalate. Under Delaware law, the corporation’s charter becomes void and all corporate powers are declared inoperative.8Delaware Code. Delaware Code Title 8, Chapter 5 – Corporation Franchise Tax A voided corporation cannot conduct business, enter contracts, or file lawsuits in Delaware courts. It can still be sued. Creditors and plaintiffs can pursue claims against a voided company, but the company cannot defend itself or assert its own rights until it reinstates.
Reinstatement requires paying all outstanding taxes, accumulated penalties, interest, and a filing fee for the Certificate of Revival. After several dormant years, the total can easily reach thousands of dollars.
How to Stop the Tax from Accruing
Simply stopping operations does not end the obligation. As long as the charter exists, the tax accrues every year. A corporation has to formally dissolve by filing a Certificate of Dissolution with the Secretary of State, and all outstanding franchise taxes and annual reports must be current before the state accepts the filing. An LLC files a Certificate of Cancellation instead.
Franchise tax is prorated in the year of dissolution, so a corporation that dissolves mid-year owes tax only for the portion of the year it existed.8Delaware Code. Delaware Code Title 8, Chapter 5 – Corporation Franchise Tax Letting an entity lapse through non-payment rather than formally dissolving it is a common mistake. Penalties and interest keep piling up during the dormant years, and the owners inherit those costs if they ever want to reinstate or wind the entity down properly.
Who Is Exempt
Certain corporations are exempt from the tax itself but still have to file the annual report with the reduced $25 filing fee. Qualifying categories include organizations exempt under Section 501(c) of the Internal Revenue Code, corporations organized primarily for religious, charitable, or educational purposes, nonprofit corporations where no earnings benefit any member, and membership benefit societies that assist sick, needy, or disabled members or support the families of deceased members.9Justia Law. Delaware Code Title 8, Chapter 5, Section 501 – Corporations Subject to and Exempt From Franchise Tax Banking corporations, savings banks, building and loan associations, captive insurance companies licensed in Delaware, and drainage and reclamation corporations are also outside the franchise tax.
Exempt status is not automatic. The corporation applies through the Division of Corporations with supporting documentation, and it still has to file an annual report each year to keep its good standing.
Federal Deduction for the Tax Paid
Delaware franchise tax is deductible as an ordinary business expense on federal corporate income tax returns. Because it is a fee for the privilege of incorporation rather than an income tax, it falls under the general deduction for ordinary and necessary business expenses.10Office of the Law Revision Counsel. 26 U.S. Code 162 – Trade or Business Expenses That holds regardless of which calculation method was used or whether the corporation actually conducts business in Delaware. The deduction is claimed for the tax year in which the franchise tax is paid or accrued, depending on the company’s accounting method.