How to pay $400 instead of $70,000 in Delaware franchise tax | Hacker News Reader

How to pay $400 instead of $70,000 in Delaware franchise tax

catonmat.net

74 pointscleverjake33 comments

Hahaha, I wish this article was written 6 months ago. I knew the absurd tax bill had to have resulted from some default value in the paperwork my defunct company had filed, my registered agent didn't help me out (probably because I didn't know the magic words to ask them), so I paid an accountant a couple hundred to rectify it to the $400. Judging by the rest of the comments on here, this seems to be like some cruel practical joke DE plays on first-time entreprenurs. Touché, Deleware.

I too almost had a heart attack. At the end of a very very bad day, close to a ledge or firearm, you wouldn't want to get that news.

I have definitely opened that letter before and almost had a panic attack

It gets easier as you receive more of them :)

I hope to god no one has paid the $70k without realizing this.

I have a feeling if someone is just learning how DE franchise tax works they're new at this. If they're new at this, $70k would probably be a deathblow. A couple google queries later at the heart stops thumping.

I'm guessing that at least one wealthy-from-birth, inexperienced person, playing with their parents' money or trust fund money, has probably just paid it. There are people for whom writing a $70K check is easier than figuring out if they actually have to pay it.

Surely someone else would have done it for them, and paid the $400? After all, you don't get wealthy by having your loved ones paying $71k when $400 would suffice.

Not necessarily. I grew up around some wealthy kids that were dumber than rocks, who have since been handed millions of dollars and have tried to invent their own jobs by creating businesses. Most of these businesses have failed, and they keep starting new ones. Success really isn't the point of these companies...it's to keep their parents off their backs about doing something with their lives.

These are the kinds of people that will pay it. They don't need to "get wealthy" - they already are.

how do I get in touch with these folks? I can help them not fail and charge a very modest percentage! :)

Is that the only cost per year for having a Delaware Inc? $400 less than the $800 I am currently paying per year for my California LLC. Is the amount you pay to Delaware based on company assets and value though?

Not sure about Inc but Delaware LLCs are $250/yr plus agent fees from $49/yr or so for the cheapest.

If you are doing business in CA or have employees there, you have to pay the $800 CA franchise tax fee in addition to the Delaware tax. So it's cheaper to incorporate in CA from that perspective.

Interesting, didn't know that you have to pay the CA franchise even if you are a Delaware Inc. How do they enforce this?

It's a getting caught premise.

If you're a foreign corporation operating in California, you're of course supposed to register as such and pay the franchise tax.

If you generate physical sales there, have local employees, or do just about anything, you'll probably file something in the state eventually that will give away that you're operating there (and or someone else you do business with in CA will). I haven't looked up the specific consequences in CA, but I would assume they have penalties for not paying the tax (eg what you were supposed to pay might get amplified).

Out of curiosity: If you're in Silicon Valley, would you register your startup in Delaware or California?

Delaware, there are numerous advantages to incorporating in Delaware.

Could you enumerate some of them for those who don't know? I'm aware of some of them, but it'd be nice to read.

Just google "delaware corporation". There are endless posts. It's not the only state which is popular to incorporate in, but it's easily the biggest.

"Over 50% of publicly traded United States corporations and 60% of the Fortune 500 companies are incorporated in that state" http://en.wikipedia.org/wiki/Delaware_General_Corporation_La...

This doesn't mean it's good for all kinds of corporations though.

> "Over 50% of publicly traded United States corporations and 60% of the Fortune 500 companies are incorporated in that state"

Publicly traded corporations and Fortune 500 companies are particularly likely to have to operate in a large number of states and deal with multistate operations issues, so it makes a lot of sense for them to be incorporated in the most advantageous state before considering multistate operations issues, because choice of where to incorporate isn't going to have a meaningful impact on the issues they have from multistate operations.

Smaller corporations, even ones that hope to later become publicly traded and/or Fortune 500 corporations, have different sets of concerns.

The biggest criticism of the "always incorporate in Delaware" argument I've seen is that it is, for small corporations, usually a premature optimization. (Most of the arguments for DE incorporation seem to center around convenience for various exits and later, investor-demanded reorganizations.)

https://news.ycombinator.com/item?id=244009

'Ask PG/YC: Why a Delaware C-Corp?'

Now, just one disclaimer, this is in the context of a company that's getting an investment from YC

(Though the first comment gets it right)

Just don't open one because you read about it on HN. Do your research first.

What's that thing again about European taxes being high?

I just find it funny that people go on about regulation and taxes in Europe then you get a tax bill from the "Best state to have a Business in" oh but if you do this "weird trick" then it's only 175x less.

Land of the loopholes and tax regulation that favors the wealthy.

Do people still maintain that the US is some kind of low tax haven? It hasn't been in a very long time. Today the US is an upper-mid range tax nation. The US is also quite regulated. A lot has changed in 50 years, and that includes the addition of an extraordinarily vast numbers of economic regulations (both at the federal and state level). Many people outside the US don't seem to realize we have an entire other government system nearly the size of the Federal system, courtesy of state + local taxation. I often see that massive tax haul left out when comparing other countries on a tax % of GDP basis, they'll list the US at ~20% instead of closer to 38% (local + state tax revenue will be around $2.8 trillion for 2015, versus ~$3.3 trillion for the federal).

This may be a dumb question, but why is franchise tax a thing? In BC I pay corporate income tax (calculated on the same form as federal income tax) and a $45 annual report filing fee, but that's all.

Delaware corporations that do not conduct business in Delaware do not pay any corporate income tax. So the franchise tax is a way for Delaware to generate revenue from all of the Delaware corporations that do not conduct business in Delaware.

Hmm, interesting. I suppose that makes sense -- although I think there's an argument to be made that rather than trying to monetize being an incorporation hub, they should just be happy with all the jobs this creates for Delaware lawyers.

Yup, pretty heart attack inducing the first time you get one of these!

I dealt with this too. It's so weird that it defaults to that.

Yeah it used to be under $100 before Delaware decided to bump it up by 5x.

it's like the first time you get a nigerian scam email

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