FREQUENTLY ASKED QUESTIONS
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Tax FAQs
- Who pays the bank franchise tax?
- When must a new bank begin filing the bank franchise tax returns?
- When do I file an estimated bank franchise tax return?
- How can I get the bank franchise tax forms?
- Will I receive a payment booklet to remind me when to send in my estimated bank franchise tax payments?
- When are the estimated bank franchise tax payments due?
- When are bank franchise tax returns due?
- Is there an extension for filing the Final Franchise Tax Return?
- What is the starting point for the calculation of bank franchise tax?
- Does the bank franchise tax return include apportionment?
- Is the bank franchise tax calculated on a consolidated basis?
- Are exam fees deducted from taxable income?
- What are Travelink credits?
- What are employment tax credits?
- Are employees of the taxpayer's subsidiaries counted in the calculation of the employment tax credit?
- What is the "safe harbor rate"?
- What is additional tax for underpayment of estimated tax?
- Does the bank franchise tax return allow for carry-backs or carry-forwards?
- How are late payment penalties calculated?
- Are amended returns with a payment subject to late payment penalties and additional tax for underpayment of estimated tax?
- Can I make estimated bank franchise tax payments electronically?
- If my bank franchise tax estimate changes, do I have to file an amended estimated bank franchise tax return?
- When are tax packets mailed out?
- How long does it take to process a refund?
- What is required when a bank franchise taxpayer leaves Delaware?
- If I have questions, who should I contact?
1. Who pays the bank franchise tax?
The bank franchise tax is imposed on banking organizations, trust companies and out-of-state federal savings banks with branches in Delaware. § 101(4) of Chapter 1, Title 5 of the Delaware Code defines "banking organization" as:
"a. A bank or bank and trust company organized and existing under the laws of this State; b. A national bank, including a federal savings bank, with its principal office in this State; c. An Edge Act corporation organized pursuant to § 25(a) of the Federal Reserve Act, 12 U.S.C. § 611 et seq., or a state chartered corporation exercising the powers granted thereunder pursuant to an agreement with the Board of Governors of the Federal Reserve System, and maintaining an office in this State; d. A federal branch or agency licensed pursuant to § 4 and § 5 of the International Banking Act of 1978, 12 U.S.C. § 3101 et seq., to maintain an office in this State; e. A foreign bank branch, foreign bank limited purpose branch or foreign bank agency organized pursuant to Chapter 14 of this title, or a resulting branch in this State of a foreign bank authorized pursuant to Chapter 14 of this title; or f. A resulting branch in this State of an out-of-state bank(as defined in § 795 of this title, and also including branch offices in this State of an out-of-state bank, as defined in § 795 of this title)."
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2. When must a new bank begin filing the bank franchise tax returns?
A banking organization or trust company is subject to the bank franchise tax once a certificate of authority to transact business has been issued. An out-of-state federal savings bank is subject to the bank franchise tax when it opens a branch in Delaware.
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3. When do I file an estimated bank franchise tax return?
Estimated Franchise Tax Returns are due March 1 of the current tax year and are required from banking organizations or trust companies, as well as out-of-state federal savings banks with branches in Delaware, with an annual bank franchise tax liability in estimated to exceed $10,000.00.
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4. How can I get the bank franchise tax forms?
The bank franchise tax forms are located on this web site under FORMS in the bank franchise tax section. You can also contact Kevin Muller at (302) 739-4235 or kmuller@state.de.us.
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5. Will I receive a payment booklet to remind me when to send in my estimated bank franchise tax payments?
No, our office does not send out payment booklets.
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6. When are the estimated bank franchise tax payments due?
The estimated bank franchise tax payments are due on or before June 1, September 1 and December 1.
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7. When are bank franchise tax returns due?
The Estimated Franchise Tax Return is due on or before March 1 of the current tax year. The Final Franchise Tax Return is due on or before January 30 of the following tax year. Any final tax payment calculated on the Final Franchise Tax Return is due on or before March 1. No invoices are sent.
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8. Is there an extension for filing the Final Franchise Tax Return?
No extension is available. A late filing penalty shall be assessed against the taxpayer in the amount of $25.00 for each day after the due date that the taxpayer fails to file the Final Franchise Tax Return, unless the State Bank Commissioner is satisfied that such failure was not willful.
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9. What is the starting point for the calculation of bank franchise tax?
The bank franchise tax calculation begins with net operating income before taxes as reported on the December 31 call report.
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10. Does the bank franchise tax return include apportionment?
The bank franchise tax on most banking organizations and trust companies is assessed on only 56% of net operating income before taxes, less applicable deductions. Several deductions are available for income attributable to subsidiaries or out-of-state or foreign branches that is otherwise subject to tax in Delaware or another state. Other deductions are available for foreign source income. Special provisions apply to out-of-state banks with branches in Delaware. Delaware law does not provide for an apportionment formula, such as one based on a sales factor, to determine the proportion of a taxpayer´s income that is subject to the bank franchise tax.
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11. Is the bank franchise tax calculated on a consolidated basis?
Yes, the bank franchise tax is calculated on a consolidated basis. The bank franchise tax calculation begins with net operating income before taxes as reported on the December 31 call report. Call reports are prepared on a consolidated basis in conformance with generally accepted accounting principles.
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12. Are exam fees deducted from taxable income?
Examination fees paid to the Office of the State Bank Commissioner pursuant to § 127(a) of Title 5 of the Delaware Code are deducted from net operating income before taxes. Supervisory assessments paid in accordance with § 127(b) of Title 5 of the Delaware Code are not deductible.
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13. What are Travelink credits?
Travelink tax credits are offered through the Delaware Department of Transportation. Companies can earn tax credits by sponsoring work at home programs or shared ride programs. The tax credit is regulated under Chapter 20 of Title 30 of the Delaware Code. Dan LaComb, Transportation Planning Supervisor in the Office of Planning under the Department of Transportation, can be reached at (302) 760-2161.
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14. What are employment tax credits?
Title 5, § 1105 provides for an employment tax credit for tax years 1997 through 2006. (House Bill 550 was enacted on 6/20/00 and extends the employment tax credit through 2006.) In order to take the employment tax credit, taxpayers must meet several requirements. These requirements and the calculation for the credit are found in Regulation No. 1109. Taxpayers that take the employment tax credit on their Final Franchise Tax Return must include the regulation and supporting documentation with their return.
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15. Are employees of the taxpayer's subsidiaries counted in the calculation of the employment tax credit?
Yes, they are included. The taxpayer's subsidiaries are fully consolidated in the call report filed with our office and taxed on the Final Franchise Tax Return. The employees of the subsidiary are part of the banking organization and are included in the employment tax credit calculation.
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16. What is the "safe harbor rate"?
The term "safe harbor rate" relates to the ability to make estimated bank franchise tax payments based on the prior year´s actual tax liability. For example, a bank's June 1, 1999 estimated payment can be paid at 40% of the actual 1998 tax liability. A taxpayer making timely estimated tax payments at the safe harbor rate will not be subject to additional tax for underpayment of estimated tax.
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17. What is additional tax for underpayment of estimated tax?
Additional tax for underpayment of estimated tax is owed when estimated tax payments are based on estimated tax that is less than 80% of the actual tax due for the taxable year, unless the estimated tax payments are made at the safe harbor rate or the underpayment is due to the capital addback for a resulting branch of an out-of-state bank. Additional tax is determined at the rate of 0.05 percent per day upon the amount of the underpayment for the period of the underpayment. The amount of the underpayment is the excess of the amount of the estimated tax or installment payment that would have been required if the estimated tax were equal to 80% of the actual tax owed for the current year, over the amount, if any, of the estimated tax or installment paid on or before the last date for payment. The period of the underpayment runs from the date the estimated tax or installment was required to be paid to the earlier of the dates when the estimated tax or installment was paid or the date of the first payment of tax for the year.
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18. Does the bank franchise tax return allow for carry-backs or carry-forwards?
In general, the bank franchise tax does not provide for carry-backs or carry-forwards between tax years. However, certain employment tax credits may be carried forward to future years.
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19. How are late payment penalties calculated?
The late payment penalty rate is 0.05% per day. The number of days late is determined by using the date of receipt of the payment or the date of electronic transmission of the tax payment. The penalty is calculated by multiplying (1) the amount of the payment, (2) the rate of 0.05%, and (3) the number of days late. Our office calculates the late payment penalty on all late payments and sends an invoice for the amount due.
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20. Are amended returns with a payment subject to late payment penalties and additional tax for underpayment of estimated tax?
Yes, amended returns with a balance due are subject to late payment penalties and additional tax for underpayment of estimated tax.
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21. Can I make estimated bank franchise tax payments electronically?
The Office of the State Bank Commissioner and the Office of the State Treasurer have established a voluntary program enabling bank franchise taxpayers to remit bank franchise tax payments electronically. Benefits to electronic payment include cost savings compared to the time and expense in writing checks and reconciling bank account activity, improved cash forecasting due to certainty of the timing of the payment, and assurance that funds will be received on time, every time. Our electronic funds transfer program provides two options, Automated Clearing House (ACH) Debit and Automated Clearing House (ACH) Credit. If you are interested in this program, contact Kevin Muller at (302) 739-4235 or kmuller@state.de.us.
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22. If my bank franchise tax estimate changes, do I have to file an amended estimated bank franchise tax return?
In general, there is no requirement for an amended estimated bank franchise tax return. However, if your banks taxable income exceeds your estimate, you may need to increase your estimated tax payments to avoid or limit additional tax for underpayment of estimated tax. Estimated bank franchise tax payments are reviewed and analyzed. When your actual estimated bank franchise tax payment is different from the estimate shown on your Estimated Franchise Tax Return, it signals to our office a change in your estimate. We welcome any information regarding a change in your estimate at any time during the tax year.
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23. When are tax packets mailed out?
Tax packets are mailed out on December 31. The packet includes the Final Franchise Tax Return, Instructions for the Preparation of Franchise Tax, Estimated Franchise Tax Return and Instructions for Calculation of Employment Tax Credits. The packets are mailed to each bank franchise taxpayer's contact on file with our office.
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24. How long does it take to process a refund?
Please allow six weeks for a Final Franchise Tax Return with a refund to be processed.
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25. What is required when a bank franchise taxpayer leaves Delaware?
When a bank franchise taxpayer ceases operations in Delaware, a final call report or financial statement setting forth the taxable income of the taxpayer is due within 30 days. A Final Franchise Tax Return is due January 30 of the following tax year and any final tax liability is due March 1 of the following tax year. A change in a bank´s charter or parent company may also require a final statement. For specifics, contact Kevin Muller at (302) 739-4235 or kmuller@state.de.us.
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26. If I have questions, who should I contact?
Any questions you have about the bank franchise tax can be directed to Kevin Muller at (302) 739-4235 or kmuller@state.de.us.
