How Delaware Businesses are taxed?
If you are planning to form a new business in Delaware then you may be required to file a Delaware business tax return and this will be applicable to the type of business entity and the activity like sale of goods or services. The tax rate will be determined by the type of Delaware business taxes applicable to your business and hence it is important to identify the taxes according to the business type. This will also ensure you are better prepared for the filing of tax returns and thus cut down on any unexpected fee or fines. The different Delaware businesses and the way they will be taxed are as follows:
Delaware Corporate Taxation
If you form a domestic or a foreign corporation in Delaware then you will have to file a Delaware business tax return unless exempt under Section § 1902 (b): Imposition of tax on corporations; exemptions; Title 30, Delaware Code. The applicable Delaware corporate tax is:
- Corporate income tax: The corporate income tax return has to be filed using Form 1100 or Form 1100EZ using their Employer Identification Number (EIN). The applicable Delaware corporate tax is 8.7% of the federal taxable income allocated as well as apportioned to the state of Delaware. The percentage tax applicable is based purely on an equally weighted 3-factor method of apportionment. The factors taken into consideration are wages, property, and sales in the state as a ratio of wages, property, and sales everywhere else.
A corporation formed in the state may be required to file a Delaware business tax return for gross receipts tax and withholding tax.
Delaware Franchise Tax
If you form a domestic or foreign company in Delaware then you will have to pay franchise tax. The Delaware franchise tax is a fee that has been imposed by the state for the privilege or the right to own a company or business in the state. This is one of the few Delaware business taxes that are not based on the income of the company or its activity. There are two methods for determining the amount of tax to be paid. If the Authorized Shares method is used then the minimum tax is $175.00 and if the Assumed Par Value Capital Method is used then the minimum tax is $400.00 for corporations. The maximum franchise tax using either method should not exceed $200,000. On the other hand, the franchise tax for a Delaware LLC is a maximum of $300.
The due date for the Delaware franchise tax is different for different types of businesses. The tax for corporations is due on March 1st of each year while the due date for an LLC is June 1 each year. If this Delaware corporate tax is not paid within the due date then the state may impose a penalty and a monthly interest fee of 1.5 percent.
Delaware personal income tax
If you form a company in Delaware, which is a pass-through tax entity, then you will be required to file Delaware business taxes in the form of personal income tax. A pass-through tax entity is a type of business where the earnings and losses of the company are passed onto the owners. The most common form of this type of business entity that files a Delaware business tax return is:
The personal income tax rate in Delaware has changed and the tax rate varies from 2.2% to 5.55% for income below $60,000, and if the income is $60,000 or more then the tax rate is 6.60%. The form for filing a Delaware business tax return will be different based on the type of entity for example, a single-member LLC classified as partnership has to file “form 300” while a single-member LLC classified as a sole proprietorship has to file “form 200”. You will also have to report all your profits and losses on Schedule C for efficient filing of Delaware business taxes.
Delaware withholding tax
If a company is conducting business in Delaware or maintaining an office in the state and is also paying wages or providing other forms of remuneration to resident or non-resident Delaware individuals then they will be required to pay Withholding Tax. This type of Delaware business taxes requires a business to withhold an estimated amount from the employees as tax.
The due date for filing Delaware business tax return for withholding taxes varies according to the payroll end date for example; if your payroll end date is 01-01-21 then the due date for return will be 01-06-21 for eight monthly filers. Similarly, for quarterly filers, if the quarter end is 03-31-21 then the filing due date would be 04-30-2021. The withholding tax forms are normally sent after a withholding application is filed with the Delaware Division of Revenue but you will have to open a withholding account using the One Stop Business Licensing and Registration system. Failure to file Delaware business taxes like the withholding tax may lead to a penalty of 5% per month along with an interest of 0.5% per month.
Gross receipts tax
If you form a business in Delaware then you may be required to file gross receipts tax. You will have to file a Delaware business tax return if you are a seller of goods (tangible or otherwise) or if your business provides any type of service in the state. It is one of the important Delaware business taxes where-in the term “gross receipts” refer to the total receipts received by a business from sale of goods or services rendered within the state. It is important to note that deductions for this type of Delaware business taxes are not applicable on labor costs, cost of goods, interest expense, property sold, discount paid, state or federal taxes, delivery costs, or any other expense allowed. The tax rate can vary from 0.0945% to 1.9914% depending on the type of business activity for example, the current tax rate for an advertising agency and General Services is 0.003983% while that of Automobile Manufacturers is 0.000945% and Retailer – General is 0.007468%. You can get more information on gross receipts tax from the Department of Revenue website.