What Delaware's franchise tax is and who pays it
Delaware's franchise tax is an annual fee that corporations and certain other business entities pay to the state in order to remain authorized to do business there. It is not a tax on profits or income — it is a tax on the right to exist as a legal entity in Delaware. Even if your business made no money that year, you still owe it.
The tax applies to Delaware corporations, limited liability companies (LLCs), limited partnerships, and certain other business structures formed under Delaware law. If you incorporated or formed your LLC in Delaware, you are subject to this tax. If you formed your business in another state but registered to do business in Delaware, you may owe Delaware's annual registration fee instead, which is different.
The amount you owe depends on which calculation method you choose and how much revenue your business reported. Delaware offers multiple ways to calculate the tax, and you pick the one that results in the lowest amount due.
Key Takeaways
- Delaware's franchise tax is an annual fee to keep your business authorized to operate in the state, separate from income tax and not based on profit.
- The amount owed is calculated using one of three methods, and you pay whichever method results in the lowest tax.
- The tax is due by March 1 each year, and late payments trigger penalties and interest that accumulate quickly.
- Failure to pay can result in your business being dissolved by the state, which removes your legal protection and makes you personally liable for business debts.
- The Delaware Division of Corporations processes payments and maintains records of which businesses are in good standing.
The three calculation methods and how to choose between them
Delaware law allows you to calculate your franchise tax using one of three methods. You are required to use whichever method produces the lowest tax bill.
The first method is based on authorized shares — the total number of shares your corporation is authorized to issue, multiplied by a per-share rate. This rate varies depending on how many shares you authorized. For example, if you authorized 10,000 shares, the rate is lower than if you authorized 1 million shares. This method is straightforward to calculate but can be expensive if you authorized a large number of shares.
The second method is based on assumed par value of capital. This is a calculation based on the total value of stock issued and outstanding. The state assumes a par value and applies a rate to it. This method often produces a lower tax than the authorized shares method.
The third method is based on gross revenue — the total income your business received during the fiscal year, with a minimum tax floor. This method requires you to report your actual revenue to the state. For many small businesses, this produces the lowest tax.
You do not have to choose in advance. When you file your annual report and pay your tax, you calculate all three methods and pay based on whichever is lowest. The Delaware Division of Corporations provides worksheets and a calculator on its website to help you determine which method applies to your situation.
When the tax is due and what happens if you miss the important date
Delaware's franchise tax is due by March 1 each year. This is a hard important date. If you miss it, penalties and interest begin to accrue when ready.
If you do not pay by March 1, the state charges a penalty equal to a percentage of the unpaid tax, plus interest. The longer you wait, the larger the total amount owed becomes. After a certain period of non-payment, the Delaware Division of Corporations will issue a notice of default and begin the process of dissolving your business.
Dissolution is serious. Once your business is dissolved by the state, you lose your legal status as a corporation or LLC. This means you lose the liability protection that incorporation provides, and creditors can pursue you personally for business debts. Dissolution also makes it harder to do business with banks, vendors, and customers, because your business no longer exists in the state's records.
If you realize you will miss the important date, contact the Delaware Division of Corporations before March 1. Some situations allow for a brief extension, though this is not may provide. Paying late is always better than not paying at all, because it stops the dissolution process and limits the penalties that accumulate.
How to file and pay your franchise tax
You file your franchise tax by submitting an annual report to the Delaware Division of Corporations. This report includes basic information about your business — your registered agent, principal place of business, and the names and addresses of your officers or managers — along with your franchise tax calculation.
You can file online through the Division of Corporations' website, by mail, or through a registered agent or business formation service. Filing online is the fastest method and provides when ready confirmation of receipt. If you file by mail, allow at least two weeks for processing.
Payment can be made by credit card, debit card, or electronic check through the online filing system. If you file by mail, you can include a check with your annual report. The Division of Corporations does not accept cash or wire transfers for franchise tax payments.
Keep a copy of your filed annual report and proof of payment. If there is ever a dispute about whether you paid on time, this documentation is your evidence. The Division of Corporations maintains a public record of all filed reports, so you can also verify your filing status on their website at any time.
What to do if you cannot pay by the important date
If you know you cannot pay by March 1, do not ignore the important date. Contact the Delaware Division of Corporations in writing before the due date and explain your situation. While the state does not offer a formal payment plan for franchise tax, communicating before the important date sometimes allows for a brief extension or gives the state a record that you are aware of the obligation.
If you have already missed the important date, pay as soon as you can. The longer you wait, the more penalties and interest accumulate. Once you pay, the state will stop the dissolution process if it has begun, though you may still owe the accumulated penalties.
If your business is already dissolved and you want to restore it, you can file a certificate of revival with the Delaware Division of Corporations. This requires paying the unpaid franchise tax, all accumulated penalties and interest, plus a revival fee. The total cost is often significantly higher than if you had paid on time.
The difference between franchise tax and other Delaware business taxes
Delaware's franchise tax is separate from federal income tax and Delaware's corporate income tax. Many business owners confuse these because they are all due around the same time of year.
The franchise tax is paid to the Delaware Division of Corporations and is based on authorized shares, assumed par value, or gross revenue. It is due March 1.
The Delaware corporate income tax is paid to the Delaware Department of Revenue and is based on your business's net income. It is due by the 15th day of the third month after your fiscal year ends — usually June 15 for businesses on a calendar year.
The federal income tax is paid to the Internal Revenue Service and follows federal rules and important date.
All three are separate obligations. Paying one does not satisfy the others. If you use a tax professional or accountant, make sure they are tracking all three important date for you.
Frequently Asked Questions
What if I formed my business in another state but do business in Delaware?
If you incorporated in another state and registered to do business in Delaware, you owe Delaware's annual registration fee, not the franchise tax. The registration fee is typically lower and is based on a flat amount or a straightforward calculation. You still need to file an annual report with the Delaware Division of Corporations, but the tax owed is different. Check your registration documents to confirm which fee applies to you.
Do I have to pay franchise tax if my business made no money?
Yes. The franchise tax is not based on profit — it is a fee to maintain your legal status in Delaware. Even if your business had zero revenue, you still owe the tax. The minimum tax amount varies by calculation method, but there is no exemption for unprofitable businesses.
Can I pay my franchise tax early?
Yes. You can file your annual report and pay your franchise tax any time during the year. Paying early does not reduce the amount owed, but it ensures you meet the March 1 important date and gives you peace of mind. Some business owners pay in January or February to avoid the rush as the important date approaches.
What happens if the Division of Corporations receives my payment after March 1?
Late payments trigger penalties and interest. The exact amount depends on how late the payment is. The state considers the payment date to be the date the Division of Corporations receives it, not the date you mailed it. If you pay by mail, allow extra time for delivery to may support it arrives before the important date.
Can I dissolve my business to avoid paying franchise tax?
You can voluntarily dissolve your business, but you must still pay all outstanding franchise taxes, penalties, and interest before the dissolution is complete. The state will not process a dissolution request if you have unpaid franchise tax. Dissolution does not erase the tax obligation — it only ends your business's legal status.