Delaware is home to more than two-thirds of Fortune 500 companies and the majority of venture-backed startups, but most of them never pay Delaware income tax. They pay the franchise tax for the privilege of being a Delaware entity and pay income tax in the states where they actually operate. For businesses that do operate in Delaware, the state has an 8.7% corporate income tax, a gross receipts tax instead of a sales tax, and personal income tax up to 6.6%.
This guide explains both sides of Delaware: what out-of-state founders pay to keep a Delaware entity, and what a business physically based in Delaware owes.
Franchise tax and annual fees
Corporations
Every Delaware corporation files an annual report and pays franchise tax by March 1. There are two methods:
| Method | How it works | Minimum | Maximum |
|---|---|---|---|
| Authorized Shares | Based on the number of authorized shares | $175 (5,000 shares or fewer) | $200,000 |
| Assumed Par Value Capital | Based on gross assets and issued shares | $400 | $200,000 |
Large corporate filers (listed companies with large assets and revenue) pay a flat $250,000. The annual report fee is $50.
Startups often panic when Delaware's notice shows a bill of $80,000 or more. The notice uses the authorized shares method by default. A company with 10,000,000 authorized shares, 8,000,000 issued and $50,000 in gross assets will usually owe about $400 under the assumed par value capital method. File online and choose the lower method.
LLCs and partnerships
Delaware LLCs, LPs and general partnerships pay a flat annual tax of $400, raised from $300 for the 2026 tax year. It's paid in arrears by June 1 of the following year, so the first $400 payment is due June 1, 2027. There is no annual report.
Corporate income tax
Corporations doing business in Delaware pay 8.7% of taxable income apportioned to the state. Key points:
- Holding company exemption: Corporations whose only Delaware activity is maintaining and managing intangible investments are exempt.
- Apportionment: Delaware now uses single sales factor apportionment.
- No tax for out-of-state operations: A Delaware corporation with no Delaware business activity files no Delaware income tax return.
- Returns: Form 1100 is due on the 15th day of the fourth month after year-end.
Gross receipts tax
Delaware has no sales tax. It instead charges businesses a gross receipts tax on Delaware sales, without the option of passing it on as a separately stated tax:
| Activity | Rate range |
|---|---|
| Retailers | About 0.7% |
| Wholesalers | About 0.38% |
| Manufacturers | About 0.19% |
| Professional and service providers | About 0.4% |
| Range across categories | 0.0945% to 1.9914% |
Most businesses get a monthly or quarterly exclusion, which removes gross receipts tax for small sellers. The tax applies whether or not the business makes a profit.
Personal income tax and pass-through owners
| Taxable income | Rate |
|---|---|
| $0 to $2,000 | 0% |
| $2,000 to $5,000 | 2.2% |
| $5,000 to $10,000 | 3.9% |
| $10,000 to $20,000 | 4.8% |
| $20,000 to $25,000 | 5.2% |
| $25,000 to $60,000 | 5.55% |
| Over $60,000 | 6.6% |
Delaware residents pay this on all income. Nonresidents pay on Delaware-source income only, which means an out-of-state LLC owner with no Delaware operations owes no Delaware income tax. Wilmington adds a 1.25% wage and net profits tax on residents and people working in the city.
Forming a business in Delaware: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $110 | $109 minimum |
| Annual tax | $400 (due June 1) | Franchise tax, $175 to $200,000 |
| Annual report | None | $50 (due March 1) |
| Registered agent | Required (commercial agents charge about $50 to $300) | Required |
| Foreign qualification in home state | Usually required | Usually required |
Remember the hidden cost: a Delaware entity operating in another state must also register there as a foreign entity, paying that state's fees and taxes.
Worked example: $500,000 of profit in Delaware
For a C corporation operating in Delaware with $500,000 of taxable income:
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Delaware corporate tax at 8.7% | $43,500 |
| Federal tax at 21% on $456,500 | $95,865 |
| Total income tax | $139,365 (27.9%) |
The gross receipts tax and franchise tax are additional. A single LLC owner living in Delaware with $150,000 of taxable income pays about $8,884 in state income tax, or about $3,934 at $75,000.
How Delaware compares with its neighbors
| State | Corporate rate | Top personal rate | Sales tax |
|---|---|---|---|
| Delaware | 8.7% plus gross receipts tax | 6.6% | None |
| Maryland | 8.25% | 6.5% plus county tax | 6% |
| Pennsylvania | 7.49% | 3.07% plus local | 6% |
| New Jersey | 6.5% to 11.5% | 10.75% | 6.625% |
As a place to operate, Delaware's no-sales-tax status draws shoppers and retailers from the surrounding region. As a place to incorporate, its competitors are Nevada, Texas and Wyoming, which have pitched themselves as alternatives.
Tax planning tips for Delaware entities
Never pay the default franchise tax bill without checking. The Delaware notice uses the Authorized Shares Method, which assumes nothing about your assets. A seed-stage startup with 10 million authorized shares will see a bill of about $85,000. Recalculating with the Assumed Par Value Capital Method on the Delaware website, using total gross assets from your federal return, typically brings the bill down to a few hundred dollars. Accurate issued share counts and gross assets are required.
Keep authorized shares in proportion. Authorizing hundreds of millions of shares raises the franchise tax under both methods. Keep the authorized count close to what you actually need for issued shares and the option pool.
Remember the foreign registration. A Delaware LLC run from Texas must register in Texas, file Texas franchise tax reports and pay Texas fees. That doubles registered agent and filing costs. For a local business that will never raise outside capital, forming in its home state is usually simpler.
Close entities properly. Delaware keeps charging the $400 LLC tax until a certificate of cancellation is filed and all taxes are paid. Abandoned entities accrue penalties and interest.
Recent changes for 2025 and 2026
- LLC and partnership tax raised to $400 from 2026.
- Corporate law amendments (SB 21): In 2025 Delaware added safe harbors for transactions with controlling stockholders and limited shareholder books-and-records demands, partly in response to companies reincorporating in Texas and Nevada.
- Single sales factor apportionment fully phased in.
Is Delaware right for your business?
Advantages
- Court of Chancery and the most developed body of corporate law
- Investor and lawyer familiarity, essential for venture funding
- No sales tax for businesses operating in the state
- No income tax on Delaware entities without Delaware operations
Drawbacks
- Double registration and fees when operating in another state
- $400 annual LLC tax, higher than many states
- Gross receipts tax applies even in loss years
- High 8.7% corporate rate for companies operating in Delaware
For a small business serving local customers in another state, forming in your home state is usually cheaper. For a startup planning to raise venture capital, a Delaware C corporation remains the default.
Compliance checklist
- File a Certificate of Formation or Incorporation with the Division of Corporations.
- Appoint a Delaware registered agent.
- Register as a foreign entity in each state where you operate.
- Pay the annual LLC tax by June 1, or the franchise tax and annual report by March 1.
- If operating in Delaware, obtain a business license and file gross receipts tax returns.
- File Form 1100 if you have Delaware-source income.
Compare Delaware with its neighbors below or estimate your taxes with the United States calculator. Read Corporation taxes for more on C corporations.