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The APV Method: Reducing Your Delaware Franchise Tax by using the Alternative Tax Method

Submitted by UCS on February 3, 2022

All Delaware domestic stock corporations, as well as non-stock, for profit entities that do not comply with the Exempt Corporation requirements, are required to file an Annual Report, and pay an Annual Franchise Tax. The state of Delaware assesses the tax using the Authorized Shares Method, which is based on the number of shares authorized by the corporation. The minimum tax for corporations using the Authorized Shares method is $175 and the maximum is $200,000*. For corporations having no par value stock, the authorized shares method will always result in a lesser tax.

*Click here for Large Corporate Filers

Reducing Your Tax
Delaware Annual Report and Franchise tax payments are due by March 1st. The State of Delaware permits for an alternative method of calculating which allows corporations to possibly reduce the amount of franchise taxes owed. This method is called the Assumed Par Value Capital Method (APV method). The minimum tax for corporations using the APV Method is $400, as the tax rate under this method is $400 per million or a portion of a million. To switch to this method, a corporation simply needs to provide figures for all issued (not authorized) shares and total gross assets when filing their annual report.  The total gross assets should be those reported on the corporations Federal Return on the U.S. Form 1120, Schedule L. An example using this method can be found here. Please also note that if an amendment was filed changing your stock or par value, the figures must be reported for each period and the tax is then prorated for each portion of the year that stock was in effect.

Schedule L
Occasionally the state will require not only the reporting of those figures, but also proof. Proof is accepted in the form of a copy of the corporation’s Schedule L of their signed and filed Federal return.

The state may request the Schedule L for any reason. But some of the reasons we see the most are:

  • 3 consecutive years reporting zero assets or reporting the same asset amount
  • $20,000 drop in tax amount or a $20 Million drop in assets
  • Switching to the APV Method
  • If assets are zero and company had assets the year before and tax is more than $5K

If the state requires a copy of the Schedule L, there will be a note added to the record and the entity will show that the report was submitted but not accepted and will therefore not be in Good Standing. The state then sends out a series of delinquency notices (approximately April and August) to notify the corporation (through the corporation’s registered agent).

What do I do next?
When you find your corporation is no longer in good standing for this reason, you can reach out to a CSR at United Corporate Services (UCS). Once you provide the necessary copy of the Schedule L, your CSR will ensure it reaches the state and that your company is brought back to good standing.

For more information, please contact UCS at (800) 899-8648 or email info@unitedcorporate.com with any questions.

About the author

Paula Lintner is the Branch Manager for the UCS Dover, Delaware office as well as Operations Manager for our affiliated company TAQ, Inc. which provides services for UCS wholesale and international clients.  Paula directs the daily operations of the Dover Branch office, while also contributing to product development and the website development team. Paula coordinates cultivating working relationships with state officials and filing agents across the country