Why is Delaware franchise tax so expensive compared to other states?

Delaware uses the corporate franchise tax as a major revenue source, it's a fee for being incorporated in Delaware, separate from income or sales tax. Most other US states charge $25-$150 for annual reports; Delaware's franchise tax starts at $175 (authorized shares) or $400 (assumed par value). The cost is one of the trade-offs for incorporating in Delaware; the benefits (developed corporate law, Court of Chancery, predictability) usually justify it for venture-backed corporations.

Which Delaware franchise tax method should I use?

Most startups with high authorized share counts and low par values use the assumed-par-value capital method to keep the tax bill low. The authorized-shares method scales aggressively with share count, a corporation with 10 million authorized shares pays $80,000+ under that method, vs. $400-$1,000 under assumed par value. The Division of Corporations' online calculator helps determine which method costs less for your specific corporation.

What happens if I miss the Delaware March 1 deadline?

Initially: a $200 late penalty plus 1.5% monthly interest, and the corporation's status changes to 'not in good standing'. Persistent non-payment for two consecutive years leads to charter forfeiture under § 510, the corporation loses its legal existence in Delaware. Reinstatement requires paying all back taxes plus penalties and filing a revival certificate.

United States · Delaware

Annual franchise tax report for a Delaware corporation

Delaware corporations file an Annual Report and pay Franchise Tax under 8 Del. C. § 502 by March 1 each year. The Annual Report fee is $50, and the franchise tax ranges from a $175 minimum (Authorized Shares Method) to a $200,000 maximum, depending on which calculation method the corporation chooses.

Governing statute

Delaware General Corporation Law, 8 Del. C.

8 Del. C. § 502	Annual report and franchise tax required
Filing authority	Delaware Secretary of State, Division of Corporations
Form	Annual Franchise Tax Report (online)
Deadline	March 1 each year
Filing fee	$50 (annual report) + franchise tax ($175 minimum, $200,000 maximum)
Late consequences	$200 penalty + 1.5% monthly interest; loss of good standing
Revival	By filing all delinquent reports and paying all back taxes

At a glance

Filed with the Delaware Division of Corporations at corp.delaware.gov
Fee combines $50 annual report fee plus franchise tax (minimum $175 under Authorized Shares Method)
Two calculation methods for franchise tax: Authorized Shares (default) or Assumed Par Value Capital (often lower)
Due March 1 each year, regardless of fiscal year end or anniversary month
Late filing triggers $200 penalty plus 1.5% monthly interest on unpaid tax

What 8 Del. C. § 502 requires

Section 502 of the Delaware General Corporation Law requires every Delaware corporation to file an Annual Franchise Tax Report and pay the franchise tax by March 1 each year. The report confirms the corporation's directors, registered agent, and registered office, and includes the calculation supporting the franchise tax payment. The fee structure is two-part: a fixed $50 annual report fee, plus the franchise tax (which is calculated separately).

The two franchise tax methods

Delaware allows corporations to choose between two franchise tax calculation methods. The default is the Authorized Shares Method: $175 for corporations with up to 5,000 authorized shares, then escalating tiers up to $200,000 for the largest corporations. The alternative is the Assumed Par Value Capital Method, which is often dramatically lower for corporations with many low-par-value authorized shares but few issued shares (a common startup pattern with 10 million authorized common shares). Corporations with large authorized-share counts should always evaluate the Assumed Par Value method, which can reduce a $20,000+ Authorized Shares calculation to under $1,000.

March 1 deadline and penalties

Delaware's March 1 deadline is fixed by statute and applies regardless of the corporation's fiscal year end or anniversary of incorporation. Late filing triggers a $200 penalty plus 1.5% interest per month on the unpaid tax. Sustained non-payment leads to the loss of good standing, which prevents the corporation from completing transactions that require a Certificate of Good Standing (e.g., financings, M&A closings, lending). Delaware corporations that have lost good standing can be reinstated by filing all delinquent reports and paying all back taxes and penalties.

What's distinctive about Delaware

Delaware's franchise tax structure is the most complex annual filing in the US, but for most corporations the franchise tax remains modest. The dual-method calculation is a planning lever: founders incorporating in Delaware should authorize sufficient shares for future growth without triggering the higher Authorized Shares tiers (or should be prepared to use the Assumed Par Value method). The March 1 deadline is well-known and rarely missed in practice, but the certificate of good standing requirement means the consequences of even brief delinquency can block a financing or sale. For counsel managing Delaware corporations, the franchise tax calculation is often the highest-value piece of routine ongoing-compliance work.

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