Business Owners Take Note: Delaware Has Raised Taxes for Certain Business Types!

If you operate an LLC, limited partnership, partnership, or corporation in Delaware, tax hikes are coming your way in July.

Delaware has very recently made some changes to their tax code for businesses: On March 18, 2014, House Bill #265 w/HA 1, HA 3 was introduced. By April 10 it was passed by the Senate, and on April 15 it was signed by Governor Jack Markell.

The Act amends Title 6 and Title 8 of the Delaware State Code, which covers taxes and fees for Delaware businesses. For what is often lauded as the most business-friendly state in the nation, the numbers seem to be going the wrong way.

What you need to know:

• Registered partnerships, limited partnerships, and limited liability companies must pay an annual tax of $300 (which was previously $250).
• Corporations must now pay a minimum $175 franchise tax if their authorized capital stock does not exceed 5000 shares (which used to be $75). If they have between 5,001 and 10,000 shares, then the tax has increased from $150 to $250.

But rest assured: according to HB 265, your annual corporate taxes will never be more than $180,000 (or less than $175. Whew.)

Annual reports for Delaware were due March 1 for domestic corporations, and are due June 1 for LLCs, LPs, and partnerships, yet in Section 6 (c) of the Act it states, “This Act shall be effective as of January 1, 2014.” A quick visit to the Tax Instructions page via the Delaware secretary of state website informs us, however, that the Act will become effective July 1, 2014—considering January 1, 2014 has come and gone by the time HB 265 was signed. And don’t worry—there will be no retroactive tax collection.

Keep in mind that if you do not pay on time, there is a penalty

Although the tax increase could hurt your pocketbook, don’t ignore what you owe to the state, cause there will be penalties:

LLCs, partnerships, and limited partnerships:

$200, plus 1.5% interest per month on your unpaid balance.

Corporations:

$125, plus 1.5% interest per month on your unpaid balance.

Many Delaware businesses will be affected by this tax increase, but the state of Delaware claims that the increases could generate as much as $51 million in additional tax revenue next year. Do you think the increase is worth the additional revenue? What would your reaction be if this affected your business?