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Delaware requires its domestic corporations to pay an annual franchise tax. There are two methods of calculating the tax—the authorized shares method and the assumed capital value method. In its 2017 legislative session Delaware enacted a bill (House Bill 175) amending the Delaware Corporation Franchise Tax Law which, among other things, increases the penalty for late filing of the annual franchise tax report, increases the maximum tax, and creates a new category for Large Corporate Filers. The amendments are effective January 1, 2018, unless other indicated and include the following -
1. Penalty for Late Filing – In the event of neglect, refusal or failure to file a complete annual franchise tax report on or before March 1, a corporation will be required to pay an additional sum of $200 (formerly, $125).
2. Franchise Tax Rate – Authorized Shares Method – In calculating the tax where the authorized capital stock is more than 10,000 shares, add $85 (formerly $75) on each additional 10,000 shares or part thereof.
3. Franchise Tax Rate – Assumed Capital Value Method – In calculating the tax where the assumed no-par capital is more than $1 million, add $85 (formerly, $75) for each $1 million or part thereof of additional assumed no-par capital. To the amount attributable to the corporation’s assumed no-par capital, add $400 (formerly, $350) for each $1 million or fraction thereof in excess of $1 million of an assumed par value capital. Whenever the amount of the assumed par value capital is less than $1 million, the amount of the tax will be the amount that bears the same relation to $400 (formerly, $350) that the amount of assumed par value capital bears to $1 million.
4. Maximum Rate – Authorized Shares Method - Other than in the case of Large Corporate Filers, the maximum tax computed by the authorized share method is $200,000 (formerly, $180,000). This amendment is effective for the tax year beginning on January 1, 2017.
5. Maximum and Minimum Rates – Assumed Capital Value Method - Other than in the case of Large Corporate Filers, the maximum tax computed using the assumed capital value method is $200,000 (formerly, $180,000) and the minimum is $400 (formerly, $350). The increase in the maximum is effective for the tax year beginning on January 1, 2017. The increase in the minimum is effective January 1, 2018.
6. Large Corporate Filers - The annual franchise tax for Large Corporate Filers is $250,000. A corporation is a Large Corporate Filer if it had a class or series of stock listed on a national securities exchange and it reported in its most recent annual report both of the following (a) consolidated annual gross revenues equal to or greater than $750 million or consolidated assets equal to or greater than $750 million and (b) consolidated annual gross revenues not less than $250 million and consolidated assets not less than $250 million. This amendment is effective for the tax year beginning on January 1, 2017.
Although these increases mainly impact larger corporations, the managers and owners of all Delaware corporations, and their legal and tax advisers, should be aware of these changes so that they are not surprised when the time comes to make their annual franchise tax payment.
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