Taxes · Accounting

Taxes for a Delaware register startup

Anonymous

March 7th, 2016

We are an early stage startup register at Delaware.
During 2015 we had a few hundreds of dollars as revenue.

I have a few questions regarding franchise tax for Delaware:
1. Legally are we expected to pay franchise tax for Delaware? If so how is it calculated?
2. Practically should we pay it now or hold off until we know we have a viable business?
3. What are the consequences for missing the March deadline (which we did)?
4. Since we already missed the March deadline, what might be the consequences if we do not pay at all (this year)?

Thanks!

Noah Webster Co-Founder at Joir

March 7th, 2016

Always better to pay late and ask them to waive P&I than to not pay at all.

Neil Gordon Board Member, Corporate Finance Advisor and Strategy Consultant

March 7th, 2016

By the way, does your business plan contemplate raising capital from anyone with any level of sophistication? Most will want to know that the corporation they are investing in is a corporation in good standing (and it's really easy for them to find out that you're not!).

Shaker Rawan Chief Problem Solver & Strategist

March 7th, 2016

Just paid the taxes on this - $400 if your registered business was considered inactive". 

Here is the link to their payment site - suggest you pay it because there is a penalty (%) which gets added as you move forward. 

https://corp.delaware.gov/frtaxcalc.shtml

I also found this helpful: http://startuplawyer.com/incorporation/the-delaware-franchise-taxes-freak-out





Neil Gordon Board Member, Corporate Finance Advisor and Strategy Consultant

March 7th, 2016

The franchise tax is based on authorized shares, and is not dependent on having income or revenues. There is a minimum tax of $175 and a minimum filing fee of $50; so there is a minimum Delaware franchise tax and annual report payment total of $225 a year. The filing deadline is March 1 and there's a stiff ($125) late fee, plus interest on the amount due. 

Failure to file and pay can result in the loss of your charter.

Craig Wilcox Founder & CEO at Simplur, Inc.

March 8th, 2016

It's likely you're seeing the tax based on outstanding shares initially, but that's an alternate calculation that seems to be the default. It can be scary. The first time I saw it, I think they estimated my taxes at $175,000. It's a bit tricky but obviously quite important to find the tax based on assets. Then it should drop to around $400 per year like was mentioned earlier.


Vanessa CPA Startup CFO Consultant

September 1st, 2016

1. Legally are we expected to pay franchise tax for Delaware? If so how is it calculated?

Yes, you must pay the DE Franchise Tax.  It's calculated on your Assets and Shares issued as of 12/31/XX.  Weird, I know!  For CCorps, its usually $400-$5000+, and note that your bill will be higher if you have more Assets at year end.  

2. Practically should we pay it now or hold off until we know we have a viable business?

Pay it now; even if the business doesn't work out, you'll still be expected to pay.

3. What are the consequences for missing the March deadline (which we did)?

Penalties are about ~25% of the tax due, plus interest.  So if you If you were supposed to owe $400 back in March and then pay late in September, expect a $530 bill.  If dont pay for 2 years your corporate charter will likely be revoked.

4. Since we already missed the March deadline, what might be the consequences if we do not pay at all (this year)?

See above.... and hope this helps!