Franchise tax is a tax charged by some US states to corporations with a nexus (aka a filing obligation) with those states. The common feature of a state’s franchise tax is that it is not based on income. Rather, the typical franchise tax calculation centers around the “net worth” of the taxpayer.

Typically, the number of shares they issue or, in some cases, the amount of their assets is used to make this determination. The purpose of the tax is to raise revenue for the state. The state of Delaware has a significant franchise tax, while other states, such as Nevada, have none at all or a smaller one. On the other hand, states with higher corporate income taxes usually have low franchise taxes and vice versa. Thus in the case of Delaware, it has no corporate income tax for companies that are listed as operating in the state, but a substantial tax applies to those that do business outside of the state.

Delaware Franchise Tax for Minimum Stock Corporations

All domestic Delaware companies that have a total of 5000 authorized shares or less must pay a minimum annual franchise tax of $75, in addition to filing an annual report of $50. Therefore, the total minimum due for this type of company is $125 and must be paid and filed electronically no later then March 1 of every year. Failure to pay on time will result in a $125 late penalty plus 1.5% monthly interest.

Delaware Franchise Tax for Corporations with more than 5,000 Shares

All domestic Delaware companies that have a total of 5001 authorized shares or more must pay an annual franchise tax and file an annual report. The minimum amount due for the franchise tax is $350 and the maximum amount due is $180,000, and the annual report fee is $50. The franchise tax amount assessment is based on the total number of authorized shares a company has, using the following two formulas. The method that results in the lesser amount of franchise tax due is the one that the company will use to pay and file. Below is detailed information from the Delaware Secretary of State regarding the different methods.

Delaware Franchise Tax for LP/LLC/GP

Every domestic and foreign Limited Partnerships, Limited Liability Companies, and General Partnerships formed in the State of Delaware is required to pay an annual tax of $250 due by June 1 of each year. The penalty for paying the annual tax late is $200 plus 1.5% monthly interest.

If you have any questions or needs regards US tax regulations please contact Mr. Aviad Kamara, President HTC Financial Solutions.

akamara@HtcFinSol.com 18 Rival St, Tel Aviv, 67778 Israel. Tel: (972)077-4005069 Cell: (972)0544-676969.

HTC Financial Solutions, LLC provides complete services that can replace entire accounting, human resource and administration departments, or fill more specific needs. We offer services to, and accounting management for, companies seeking temporary or start-up financial expertise covering corporate and treasury functions as well as stable day-to-day services for an operation of any size in the USA.