On July 2, 2017, Delaware governor John Carney sign HB 175 into law. This bill, introduced by Representative Peter Schwartzkopf, makes significant changes to the Delaware franchise tax. Specifically, this bill increases the maximum franchise tax levels to $200,000 for most corporations.
In addition, however, for certain large corporations, known as “Large Corporate Filers”, the maximum tax is increased to $250,000. A “Large Corporate Filer” is a corporation that is listed on a national securities exchange and who, in its most recent financial statements reported either consolidated annual gross revenues or consolidated assets equal to $750,000,000 and who reported consolidated annual gross revenues and consolidated assets of at least $250,000,000.
In addition to the above large increases, HB 175 also increases the penalty for late franchise tax filings to $200. The bill also increases the share value multiplier for franchise tax calculation purposes to $85 per 10,000 shares for those corporations where the authorized capital stock exceeds 10,000 shares. Similarly, the bill also increases the par value multiplier for franchise tax calculation purposes for corporations with no-par capital exceeding $1,000,000 to $85 per $1,000,000 of additional no-par capital . Finally, the additional amount added to the tax computed using no-par capital value is increased to $400 per $1,000,000.
This bill has varying effective dates. Specifically, the general maximum tax increase is effective for tax year beginning on or after January 1, 2017. However, the increases in share value multiplier and the no-par value multiplier, along with the penalty increase, will be effective beginning January 1, 2018.
Companies who are currently subject to Delaware franchise tax should review these changes to determine how they may affect future Delaware franchise tax liabilities. While this bill is targeted at larger, high value and revenue businesses, smaller businesses may still wish to review their franchise tax filings to determine if the multiplier increases substantially increase franchise tax liability.
P&N will continue to monitor the ongoing state and local tax reform efforts and will keep you updated on how those developments may affect you. If you have any questions about the Delaware franchise tax, please contact us.