Can You Lower Delaware Franchise Tax? A Simpler Way Some Corporations May Pay Less

If your Delaware corporation got hit with a surprisingly high franchise tax bill, you are not alone. One of the most common questions business owners ask is: Why is my Delaware franchise tax so high? Consequently:  Is there a legal way to lower Delaware franchise tax? In many cases, the answer is yes. Delaware allows corporations to calculate franchise tax in more than one way, and one option, Delaware’s Assumed Par Value Capital Method, sometimes referred to informally as an alternative capitalization method, can significantly reduce the amount due when the numbers fit.

So when does this route make sense? Usually, it helps when a corporation has a large number of authorized shares on paper, but does not have large assets or a large number of issued shares in real life. That situation is common with newer companies and startups that set up a big share structure early, then later receive a franchise tax bill that feels wildly out of proportion to the size of the business. Under the Assumed Par Value Capital Method, Delaware looks at the corporation’s gross assets and issued shares, rather than relying so heavily on the total number of authorized shares alone. To use this method properly, the corporation needs accurate financial information, including total gross assets tied to the company’s tax return for the applicable year.

Just as important, this is a rule for Delaware corporations, not Delaware LLCs. Delaware LLCs generally pay a flat annual tax, while Delaware corporations must file an annual report and pay franchise tax based on one of Delaware’s approved calculation methods. The Assumed Par Value Capital Method may lower the underlying corporation tax, but it does not erase penalties or interest that may already have been added for a late filing or late payment.

At Amerilawyer, we help clients answer practical questions like: Can I lower my Delaware franchise tax bill? Did Delaware calculate my corporation tax too high? Am I paying based on authorized shares when I should be using a different method? In the right case, a careful review can save real money. If your Delaware corporation is facing a tax bill that does not seem to match the size of your business, contact Amerilawyer. We can review your structure, your shares, and your asset figures and help you determine whether this lower cost filing route is available.