How do I calculate the Delaware franchise tax?
For more help with tax and compliance matters, see How can my corporation get help complying with Delaware’s requirements?.
You can calculate the Delaware franchise tax using one of two methods.
Authorized Shares Method
This method calculates the tax based on the number of shares your corporation has authorized. Your corporation will owe an estimated $85 for each 10,000 shares authorized. The minimum tax when using this method is $175, and the maximum tax is $200,000.
See our handbook glossary for more information about authorized shares.
Example: Acme, Inc. has authorized 10 million shares. Because Acme, Inc. has at least 10,000 shares, they already owe $250. Their total bill will be $250.00 plus $85.00 for each additional 10,000 shares.
Subtract 10,000 shares to determine the amount of shares to be charged at the $85 rate.
10,000,000 shares - 10,000 shares = 9,990,000 shares
Divide by 10,000 shares to determine the number of times the $85 rate will need to be charged.
9,990,000 shares / 10,000 shares = 999
Multiply the number of times the $85 rate will be charged by $85.
999 × $85 = $84,915
Add $250, the rate charged for the first 10,000 shares, to the amount from the prior step, to obtain the total amount owed.
$84,915 + $250 = $85,165
Acme, Inc.’s franchise tax will be $85,165.
Assumed Par Value Capital Method
This method calculates the tax based on your corporation's total gross assets and the ratio of issued shares to authorized shares. Your corporation will owe an estimated $400 for each $1,000,000 in gross assets. The minimum tax when using this method is $400, and the maximum tax is $200,000.
The Delaware Department of Corporations defines total gross assets as "those 'total assets' reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company’s fiscal year ending the calendar year of the report".
Example: Acme, Inc. has $50,000 in total gross assets, 5 million issued shares, and 10 million authorized shares.
Divide total gross assets by total issued shares to get the Assumed Par Value.
$50,000 / 5,000,000 shares = $0.01
Multiply the Assumed Par Value by total authorized shares to get the Assumed Par Value Capital.
$0.01 x 10,000,000 shares = $100,000
Every group of $1,000,000 is taxed $400. Divide the Assumed Par Value Capital by $1,000,000 to determine the number of groups of $1,000,000 to be taxed.
$100,000 / $1,000,000 = 0.1
Calculate the franchise tax as $400 for every $1,000,000 of Assumed Par Value Capital. Since Acme, Inc.'s Assumed Par Value Capital falls below $1,000,000, they will pay the minimum tax.
Acme, Inc.’s franchise tax will be $400 (the minimum tax).
The Methods Compared
|Assumed Par Value Method||Authorized Shares Method|
|Tax Estimate Rule of Thumb||$400 for each $1,000,000 in gross assets (see Note 1)||$85 for each 10,000 shares authorized|
Most startups use the Assumed Par Value Capital Method to calculate their franchise tax bill. This method almost always results in a lower tax for our customers because startups generally have few assets but authorize millions of shares.
How to Use the Assumed Par Value Capital Method
You can calculate your corporation’s franchise tax using the Assumed Par Value Capital Method when you file the annual franchise tax report on the Delaware Division of Corporations website. Simply report your corporation’s total gross assets and the number of shares issued when completing the online filing.
Most startups can follow these steps:
- Enter the corporation’s total number of issued shares in the Issued Shares field
- Enter the corporation’s total gross assets in the Gross Assets field
- Enter the last day of your startup’s fiscal year in the Asset Date field
- Click Recalculate Tax
Note that the steps above may differ if your corporation customized its par value or fiscal year.
For more information about filing the annual franchise tax report, see How can I file the Delaware annual report?.
If any of the following apply to your corporation, the Delaware Division of Corporations Franchise Tax department requests you call them for special assistance at 302-739-3073 (option 3):
- Total gross assets equal zero
- Number of shares issued equals zero
- Shares are not assigned a par value in the certificate of incorporation