If you formed an LLC in Delaware, you have probably heard something about the state’s infamous corporate franchise tax. It has a reputation for confusing calculation methods and bills that can run into the thousands of dollars for larger companies. Naturally, this leaves a lot of Delaware LLC owners wondering if they will have to face the same complexity.
The good news is that this is not the case. Unlike corporations, LLCs in Delaware owe a flat $300 per year. There’s no complicated calculation to work through, no income threshold to worry about, and you don’t even have to file a report when paying the LLC franchise tax. Whether your LLC made a million dollars last year or sat completely dormant, the amount and the process are both the same.
In this article, we’ll walk you through what the obligation actually is, who owes it, when it is due, and how to pay it, so you can handle it with ease and move on with running your business.
What is the Delaware LLC franchise tax?
The Delaware LLC franchise tax is an annual fee paid for the privilege of maintaining a Delaware LLC registered in the state. It is administered by the Delaware Division of Corporations, which is the same office that handles LLC formation and other business filings.
A quick note on terminology, since it trips people up: Delaware’s official name for this obligation, as it applies to LLCs, is the “annual tax.” However, most people search for it using the term “franchise tax,” partly because that is the term Delaware uses for its corporate tax and the two get lumped together in conversation. You will see both terms used to describe the same $300 LLC payment, so don’t let the different names confuse you.
This tax applies regardless of your LLC’s revenue, income, or business activity. Even a business that generated no income and did no business during the year still owes the full amount.
Delaware LLC vs. Delaware corporation: different rules
Most of the confusion surrounding the annual tax Delaware LLCs are required to pay arises from the different rules applying to LLCs and corporations in the state. Delaware corporations and Delaware LLCs are subject to completely different franchise tax systems, and the system LLCs are subject to is much simpler.
Corporations calculate their franchise tax using one of two methods, either the Authorized Shares Method or the Assumed Par Value Capital Method. These calculations take into account the number of authorized shares or the company’s gross assets, and the resulting bill can range from modest to substantial depending on how the corporation is structured. Some corporations end up owing thousands of dollars a year.
LLCs do not use either of these methods. In fact, there is no calculation at all. The amount owed is a flat $300, no matter how the LLC is structured or how much it earns.
Who has to pay it?
Every domestic LLC formed in Delaware, along with every foreign LLC registered to do business in Delaware, owes this annual tax. There are no exemptions based on activity level. An LLC that never opened a bank account, never signed a client, and never generated revenue still owes the $300 for as long as it remains registered with the state. The only way to stop owing it is to formally dissolve the Delaware LLC.
A couple of details worth knowing:
Series LLCs, which allow multiple protected series under one parent LLC, owe an additional $75 for each series entity on top of the base $300.
If you formed your LLC partway through the current year, you will not owe the annual tax right away. The obligation does not kick in until June 1st of the following year. This gives newly formed LLCs a bit of breathing room before their first payment comes due.
How much is the Delaware LLC franchise tax?
To put it plainly: the amount is a flat $300 per year for every LLC. It doesn’t matter how much revenue your LLC generates, how many members it has, or its business activities, and there’s no report to fill out that could change the number. You simply owe $300 every year that your LLC remains registered with the state. This is one factor in your overall Delaware LLC cost.
When is it due?
The Delaware LLC annual tax is due every year on June 1st. This deadline does not shift based on when your LLC was formed (aside from the first-year exception mentioned above), and it does not change from year to year.
Payment must be made online. Delaware does not accept mailed-in payments for this tax, so you will need internet access and a few minutes to complete the transaction each year.
Unlike most states, The First State does not require a Delaware LLC annual report to accompany this payment for LLCs. You are simply paying the tax itself, with no additional paperwork attached. This is one of the reasons the process feels so much lighter than what corporations, or LLCs in many other states, have to deal with.
How to pay it
Payment is made through the Delaware Division of Corporations’ online portal. You can pay using a credit card or an electronic check.
To complete the payment, you will need your LLC’s file number, which is the identification number assigned to your business when it was formed. If you don’t have this number on hand, you can find it on your original certificate of formation, and it can also be looked up through the Division of Corporations’ business entity search tool.
What happens if you miss the deadline?
Missing the June 1st deadline comes with real consequences, so it’s important to stay on top of it. A missed payment triggers a flat $200 late fee, which is added to the $300 you already owe. Along with that fee, interest accrues at a rate of 1.5% per month on both the unpaid tax and the penalty, which adds up quickly the longer the balance goes unpaid.
If the tax remains unpaid for an extended period, Delaware can move the LLC into void status. A void LLC loses its good standing with the state, which can interfere with your ability to conduct business, open or maintain bank accounts, or raise investment, since many banks and investors will ask for proof of good standing before doing business with you.
The good news is that reinstatement is possible. Bringing a void LLC back into good standing typically involves paying all back taxes, penalties, and accrued interest, along with a reinstatement fee. It is an extra hassle and expense that is easy to avoid simply by paying on time each year.
Common mistakes Delaware LLC owners make
There are a few common missteps that come up again and again when Delaware LLC owners pay their annual tax. Here are the most common ones to know about and avoid:
- Assuming the complex corporate franchise tax calculation applies to their DE LLC, when in fact LLCs owe a simple flat fee.
- Believing that an inactive or dormant Delaware LLC is exempt from the tax, when the obligation continues until the LLC is formally dissolved.
- Losing track of the deadline because Delaware does not send a notice directly to the LLC. Reminders go to the LLC’s Delaware registered agent instead, so if you are not paying attention to communications from your registered agent, it is easy to miss the deadline.
- Assuming a Delaware LLC annual report is required alongside the payment, based on how things work in most other states, and then being confused when no such form exists for Delaware LLCs.
Just remember that the process really is as simple as it sounds: you pay the $300 each year by June 1st, and that is all that’s required.
How this fits into your broader LLC compliance
The annual tax is just one piece of keeping a Delaware LLC in good standing. Maintaining a registered agent, keeping your EIN and business records current, and staying on top of any other state-specific requirements all round out the full compliance picture.
If you would like to avoid having to keep track of these obligations on your own, Tailor Brands offers support across the full lifecycle of an LLC, including formation, EIN registration, registered agent service, and ongoing compliance help, so nothing slips through the cracks.
Conclusion
Of all the annual obligations you might face as a business owner, Delaware’s LLC tax ranks among the simplest. It comes down to a flat $300, paid online, once a year, with no calculations and no extra reports.
As with any tax matter, it is worth double-checking current figures and deadlines directly with the Delaware Division of Corporations, since fees and procedures can be updated over time. But for the vast majority of Delaware LLC owners, this is one compliance task that does not need to cause any stress.