
How to pay $400 instead of $70,000 in Delaware franchise tax - cleverjake
http://www.catonmat.net/blog/delaware-franchise-tax/
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acjohnson55
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.

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rdlecler1
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.

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

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jmtame
It gets easier as you receive more of them :)

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

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downandout
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.

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jckt
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.

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downandout
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.

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

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nodesocket
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?

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jclarkcom
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.

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

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adventured
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).

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

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iaw
Delaware, there are numerous advantages to incorporating in Delaware.

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ericd
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.

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forrestthewoods
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...](http://en.wikipedia.org/wiki/Delaware_General_Corporation_Law)

~~~
dragonwriter
> "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.)

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raverbashing
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.

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adventured
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).

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cperciva
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.

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dirtae
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.

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cperciva
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.

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

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

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

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

