If you have just opened a Delaware notice quoting a franchise tax of $85,000, the number is real, but it probably is not final. Delaware assesses the tax on your authorized shares, and for a company that authorized millions of shares at incorporation, that lands in the tens of thousands. Before you pay, recalculate under the Assumed Par Value Capital Method. Delaware's own instruction to filers is to use whichever method results in the lesser tax.
Why the notice defaults to the scary number
The default is not a trap, and the reason is worth getting right. Delaware assesses on authorized shares because it is the only method it can compute from data it already holds: your share count is on file from your certificate of incorporation. The Assumed Par Value Capital Method needs your total gross assets and total issued shares, which the state does not know until you report them. The assessment is built from the one input Delaware already has, not a deliberate pick of the larger number.
It is frequently not the larger number, either. For asset-heavy companies the Assumed Par Value Capital Method produces the bigger bill, which is precisely why the state cannot pick for you.
The two methods, side by side
| Authorized Shares Method | Assumed Par Value Capital Method | |
|---|---|---|
| Minimum tax | $175 | $400 |
| What it counts | Authorized shares only | Gross assets, issued shares, authorized shares, actual par value per class |
| How it scales | $175 up to 5,000 shares; $250 for 5,001 to 10,000; plus $85 per additional 10,000 or part thereof | $400 per $1,000,000 of assumed par value capital or part of a million; prorated below $1,000,000 |
| Maximum tax | $200,000 ($250,000 large corporate filers) | $200,000 ($250,000 large corporate filers) |
| Why Delaware can or cannot run it | Uses the share count already on file | Needs data only you can report |
Rates are set at 8 Del. C. 503(a)(1) and 503(a)(2), with the maximum and the large corporate filer amount at 503(c). Calculation mechanics are published by the Delaware Division of Corporations at corp.delaware.gov/frtaxcalc.
A worked example: $85,165 versus $400
Take a capital structure common to fast-growing companies of every kind, not just venture-backed ones: 10,000,000 authorized shares, 8,000,000 issued, $500,000 in total gross assets, par value $0.0001 per share. Here is what each method produces on identical facts.
Authorized Shares Method (the assessment)
- Start at $250, which covers the first 10,000 authorized shares.
- The remaining 9,990,000 shares divide into 999 increments of 10,000.
- 999 increments at $85 each = $84,915.
- Total: $250 + $84,915 = $85,165.
Assumed Par Value Capital Method (the recalculation)
- Assumed par value = total gross assets / total issued shares = $500,000 / 8,000,000 = $0.0625, carried to six decimal places.
- Compare actual par to assumed par. Actual par ($0.0001) is lower, so this class is multiplied by the assumed par.
- Assumed par value capital = $0.0625 x 10,000,000 authorized = $625,000.
- $625,000 is under $1,000,000, so the tax is prorated: ($625,000 / $1,000,000) x $400 = $250.
- $250 falls below the method's $400 minimum, so the tax is $400.
$85,165 under the assessment, $400 after recalculating. That is a 212.9x difference on identical facts. You file and pay whichever number is lower, which is the whole point of running both.
Most write-ups say this method needs gross assets and issued shares. It needs four: total gross assets, total issued shares (including treasury shares), total authorized shares, and the actual par value of each class. Delaware defines total gross assets as the total assets reported on U.S. Form 1120 Schedule L for the fiscal year ending within the report's calendar year. A class whose actual par exceeds the assumed par is calculated at its actual par, which pushes the result up rather than down.
The rounding rule that trips up recalculations
Two rules apply on either side of $1,000,000, and mixing them up is the most common error in a DIY recalculation.
- Above $1,000,000, capital is charged at $400 per million or part of a million. $37,500,000 counts as 38 parts, not 37.5, so the tax is $15,200 rather than $15,000.
- Below $1,000,000, capital is prorated rather than rounded up. $625,000 divides by $1,000,000 and multiplies by $400 to give $250, which the $400 minimum then raises to $400.
- The $400 minimum applies after the arithmetic, so this method never produces less than $400.
That error is masked at $625,000, where the $400 minimum catches it anyway. It stops being masked once assumed par value capital clears $1,000,000.
"It drops to about $400" is only true for asset-light companies
The Assumed Par Value Capital Method is not a flat escape hatch. It is a second calculation whose result climbs with your balance sheet, because gross assets sit in the numerator. Same 10,000,000 authorized and 8,000,000 issued shares, but $30,000,000 of gross assets at fiscal year end.
- Assumed par value = $30,000,000 / 8,000,000 = $3.75.
- Assumed par value capital = $3.75 x 10,000,000 = $37,500,000.
- Tax = 38 parts of a million at $400 each = $15,200.
Still well below the $85,165 assessment, but $15,200 is not "a few hundred dollars." A company that raises a large round and holds the cash at fiscal year end will watch this number move. The recalculation is an annual exercise, not a one-time fix: the inputs change every year, and so does which method wins.
The fee, the deadline, and the quarterly threshold
The tax is not the only line item, and March 1 is not the only date.
- Annual report fee: $50 for non-exempt domestic corporations, $25 for exempt ones, on top of the tax.
- Due date: on or before March 1 for domestic corporations, covering the prior year, filed online.
- Late filing: a $200 penalty plus 1.5% interest per month on tax and penalty. A corporation not current on franchise tax also cannot obtain a certificate of good standing, which tends to surface at the worst moment in a financing or acquisition.
- Quarterly payments: estimated franchise tax of $5,000 or more means 40% by June 1, 20% by September 1, 20% by December 1, and the balance with the annual report by March 1, per 8 Del. C. 504(a).
That last item catches companies that only think about franchise tax in February. If your recalculated tax reaches $5,000, the first installment was due the previous June 1, not the following March. Crossing $5,000 follows from balance sheet growth, so the quarterly schedule can arrive the year after a big raise, unannounced.
Should you just authorize fewer shares?
Usually not, and the recalculation is the reason. A high authorized share count buys flexibility for option pools and financing rounds, and the Assumed Par Value Capital Method already absorbs most of the tax consequence. Amending your certificate to change authorized shares or par value carries its own filing costs and cap table effects. A mid-year amendment also triggers a day-weighted prorated calculation, making the year's math messier rather than cheaper.
Raising par value is the move that most often backfires. Because a class whose actual par exceeds the assumed par is calculated at that higher actual par, a par value increase can raise your Assumed Par Value Capital Method result rather than lower it. Recalculating is the lever. Re-authorizing rarely is.
Turning it into an annual routine
- Pull total gross assets from Form 1120 Schedule L for the fiscal year ending within the report's calendar year.
- Pull total issued shares including treasury shares, total authorized shares, and the actual par value of every class.
- Enter issued shares and gross assets in the annual report on the Division of Corporations system, which reprices under both methods and shows the lower figure. Leave those fields blank and the assessment stands.
- Check whether the result reaches $5,000, which puts you on the quarterly schedule.
- File and pay by March 1, then diarise next year's recalculation.
The Delaware franchise tax exists whether or not you have revenue or employees, which is why it blindsides companies at every stage of growth. It sits alongside your federal filing, where the pre-revenue filing rules still apply, and any credits you qualify for such as the R&D tax credit. Definitions are in our Delaware franchise tax glossary entry. Keeping the recalculation, the March 1 deadline, and the $5,000 threshold on one calendar is what a tax and compliance service exists to do.
This article explains how Delaware's two franchise tax calculation methods work under 8 Del. C. ch. 5 and the rules published by the Delaware Division of Corporations, as of 17 July 2026. It is general information, not tax advice, and not a substitute for professional review of your own filing. Your franchise tax depends on your authorized shares, issued shares, actual par value per class, total gross assets, and any mid-year amendments to your capital structure. Statutory rates and thresholds can change. Confirm your figures with a qualified tax professional and with the Delaware Division of Corporations before you file or pay.