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Editorial 9 MIN READ

Reading a Delaware franchise tax notice, 2019 edition

HB 385 raised the cap, retooled the per-million rate, and pushed almost everything through the online portal

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 6 sections
  1. What HB 385 actually did
  2. The two calculation methods, with the 2019 numbers
  3. The § 502 report is still the mechanism
  4. Reading the 2019 notice line by line
  5. What to do in the next week
  6. Sources

Delaware franchise tax notice in 2019 looks almost identical to the one a founder opened in 2017. The envelope, the file number, the two computed numbers, the March 1 deadline. What changed sits underneath: House Bill 385 of the 149th General Assembly reset the ceiling and the per-million rate, and the Division of Corporations now expects the annual report and payment to move through the online portal rather than the paper voucher. If you last read a Delaware franchise tax notice in the 2017 filing season, about seventy percent of what you learned still holds, and the rest has shifted in ways that matter for large filers and for anyone whose assumed par value calculation sits near the cap.

This piece walks through the 2019 notice line by line, points at the HB 385 changes so you know which numbers have moved, and gives the arithmetic for the two calculation methods as they read on the statute today.

What HB 385 actually did

HB 385 was introduced in the 149th General Assembly and was part of a 2017 revenue package that took effect for the tax year beginning January 1, 2018. The first franchise tax bills reflecting the changes landed in early 2018, and the 2019 notices you are reading now are the second full cycle under the new numbers.

Three provisions of the bill show up on the notice.

The first is the per-million rate in the assumed par value capital method. The old rate was $350 for every $1,000,000 (or fraction) of assumed par value capital. Under 8 Del. C. § 503(2) as amended, the rate is now $400 per million, with a $400 minimum. A pre-revenue C-corp with modest gross assets still lands at the floor, so the bill at the bottom of the calculation has not changed for the median founder. What changed is the slope. A corporation with a balance sheet in the tens or hundreds of millions pays meaningfully more under the new rate, and that is the point of the amendment.

The second is the ceiling. The old cap was $180,000 under both methods. The 2018 amendment to § 503(c) raised the regular cap to $200,000 and added a new tier: for a corporation that would otherwise owe the $200,000 cap and that meets the statutory criteria for a "Large Corporate Filer," the annual franchise tax is fixed at $250,000. Large Corporate Filer status applies to corporations with a class of stock listed on a national securities exchange that also report, on their most recent consolidated financial statements, either (a) annual gross revenues of at least $750,000,000 or consolidated assets of at least $7,000,000,000, combined with (b) at least $250,000,000 in the other metric. The Secretary of State designates which corporations fall into the tier each year. If you are reading this and unsure whether the designation applies to your company, it does not.

The third is the retooled online filing pathway. Delaware had offered online franchise tax filing for years, but paper and faxed annual reports were still in circulation as late as 2016. By the 2019 cycle, the Division's online portal is the expected route for nearly every filer. The calculator at corp.delaware.gov previews both methods, lets you enter the gross-assets and issued-shares inputs directly, generates the report and the voucher, and processes payment by ACH or credit card. Founders who still receive a paper notice should use the portal anyway; it is faster, it prevents the single most common error (paying the authorized shares number when the assumed par value number is lower), and it is where the Division wants you.

The two calculation methods, with the 2019 numbers

Every stock corporation chartered in Delaware pays an annual franchise tax under 8 Del. C. § 503. The Division computes the tax two ways and prints both on the notice, but the figure printed most prominently and defaulted into the payment voucher is the authorized shares method. The statute permits the taxpayer to pay the lower of the two. Delaware does not remind you of this on the notice. It is your job to look.

The authorized shares method under § 503(1) is mechanical:

  • 5,000 authorized shares or fewer: $175.
  • 5,001 to 10,000 shares: $250.
  • Each additional 10,000 shares (or part thereof): add $85.
  • Capped at $200,000 (or $250,000 for a Large Corporate Filer).

A startup Delaware C-corp chartered with 10,000,000 shares of common stock (still the standard startup template) runs this way: $250 for the first 10,000, plus $85 for each of the remaining 999 increments of 10,000. That is $250 + (999 × $85) = $85,165. Add the $50 annual report filing fee under the Division's fee schedule and the notice prints $85,215. Nothing about this arithmetic changed with HB 385. The authorized shares tiers and the per-tier add-on are the same in 2019 as in 2016.

The assumed par value capital method under § 503(2) is where HB 385 reset the rate. The tax is now $400 for every $1,000,000 (or fraction) of assumed par value capital, with a $400 minimum. Assumed par value capital is derived from two inputs the corporation reports on its annual franchise tax report: total gross assets (from the federal Form 1120, Schedule L, line 15, column (d), as of the fiscal year end) and total issued shares. The Division's calculator runs the arithmetic, which roughly goes: (gross assets ÷ issued shares) × authorized shares = assumed par value capital, then divide by $1,000,000 and multiply by $400.

For a pre-revenue C-corp with $50,000 in the bank, 8,000,000 shares issued to founders at $0.0001 par, and 10,000,000 authorized, the assumed par value calculation lands below $1,000,000 of assumed par value capital and the tax is the $400 minimum. Plus the $50 annual report fee: $450. The notice said $85,215. The delta is $84,765 and the delta is legal; § 503 explicitly authorizes the taxpayer to pay the lower figure. That part of the regime did not change.

What did change is the slope. A corporation that previously landed at, say, $50,000 in assumed par value capital tax under the old $350 rate now pays closer to $57,000 under $400. For a large filer with tens of millions in gross assets and an expanded cap, the practical maximum moved from $180,000 to $200,000, or to $250,000 for the Large Corporate Filer tier. If your 2018 bill was higher than your 2017 bill and nothing about your balance sheet changed, HB 385 is the reason.

The § 502 report is still the mechanism

The election between the two methods is not a phone call. Under 8 Del. C. § 502, every domestic stock corporation must file an annual franchise tax report on or before March 1, setting out the information the Division needs to compute the tax, including the inputs required for the assumed par value method. In 2019 the report is filed through the Division's online portal, along with payment of the tax and the $50 filing fee. Filing the report with accurate gross-assets and issued-shares data is how you invoke the cheaper method; the Franchise Tax Calculator previews both numbers before you submit.

Miss the March 1 deadline and § 502(c) applies: a $200 penalty, plus 1.5% interest per month on the unpaid tax, compounding monthly. A corporation that ignores two consecutive reports loses good standing; one that ignores three is voided under § 510. None of this is theoretical. The Division voids several thousand corporations a year on exactly this path, and voidance is easier to incur than to cure. A voided entity that needs to close a financing or sign a lease must file a Certificate of Revival and bring all back taxes, penalties, and interest current first, which is a tax problem and a deal-timing problem at once.

One change on the cash-flow side: under § 503(c), any corporation whose tax bill exceeds $5,000 must pay in quarterly installments. Forty percent is due by June 1, twenty percent by September 1, twenty percent by December 1, and the remainder by March 1 of the following year. This provision was on the books before HB 385 but catches more companies now because the ceiling is higher and more mid-sized filers sit above the $5,000 threshold. If the 2019 notice is your first to exceed that line, the portal will prompt you for the installment schedule; paying the whole amount in March still works but most large filers smooth it.

Reading the 2019 notice line by line

The notice is short. Every field maps to a statutory input. Read it in this order.

Entity name and file number. Confirm the file number matches your Certificate of Incorporation. Delaware is past 1.4 million active entities and the notices are batch-produced; typos in name do not change what you owe but do matter for good standing.

Annual report filing fee: $50. Non-negotiable. Separate line from the tax. Owed even if the tax is at the $175 minimum.

Authorized shares. Pulled from your Certificate of Incorporation. If this is 10,000,000 and you did not mean it to be, two choices: pay under the assumed par value method for as long as it is cheaper, or file a Certificate of Amendment to reduce authorized shares. Amendments require a board and stockholder vote under 8 Del. C. § 242 and carry filing fees.

Issued shares. Pulled from your annual report. If you report zero issued shares, Delaware defaults the assumed par value calculation to use the authorized shares number, and the two methods produce nearly identical results. Issue your founder stock promptly after formation; unissued authorizations help nobody.

Total gross assets. The number from Schedule L of your federal Form 1120. Pre-revenue companies report a few tens of thousands of dollars. This is the denominator that drives the assumed par value method toward the floor.

Tax due (authorized shares method). The scary number.

Tax due (assumed par value capital method). The real number for most startups.

Pay the lower of the two. Under the 2019 portal flow, the calculator preview will show both and let you select the method; the notice still prints the authorized shares figure as the default, but the online election is what controls.

Large Corporate Filer designation. If the notice carries a Large Corporate Filer designation, the math above does not apply and the bill is $250,000 regardless of method. This affects a small number of public companies each year and the Secretary of State publishes the designations.

What to do in the next week

If your corporation was formed within the last year and the notice reads five figures or more, do not pay the printed amount. Log into the Division's online filing system, run the Franchise Tax Calculator with your actual gross assets and issued shares, file the annual report under § 502, and pay the assumed par value figure. For a typical pre-revenue C-corp that has issued founder stock, the process takes about twenty minutes.

If your corporation has real assets (meaningful cash from a priced round, equipment, inventory, receivables) the assumed par value number will be higher than the $400 floor and may be higher than the authorized shares number. Run both calculations every year. The right method is not a lifelong choice; it flips as the balance sheet changes, and under the new $400 per-million rate the crossover can happen at a lower asset level than it did before 2018.

If the March 1 deadline is already past, file anyway and pay the tax, penalty, and interest. The Division does not negotiate the penalty. It does restore good standing promptly once the balance is cleared, which matters if the corporation needs to sign a lease, close a financing, or qualify to do business in another state.

One rule of thumb for founders in 2019: a Delaware C-corp with minimal assets and ten million authorized shares should expect to owe roughly $450 a year ($400 under § 503(2) plus $50 under the annual report fee), not the $85,000 the notice suggests. HB 385 did not change that floor. It raised the ceiling, steepened the slope for asset-heavy corporations, and moved the filing online. The notice still tests whether you know which number to pay.

Sources

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