Delaware franchise tax is an annual tax Delaware charges every corporation incorporated there, including startups headquartered elsewhere, just for the right to be a Delaware entity, separate from and in addition to any income tax owed.
The tax is calculated using one of two methods, and Delaware's mailed notice defaults to the Authorized Shares Method, which typically comes out higher for an early-stage company, unless the company recalculates using the alternative method itself. The default method is based on the number of authorized shares, which can produce a surprisingly large bill for a startup that authorized a large share count at formation without realizing the tax consequence.
The other method, based on assumed par value and total assets, is usually far cheaper for an early-stage company with a large authorized share count and modest actual assets, but it isn't applied automatically. A startup that just pays whatever the state's default bill says, without recalculating under the assumed par value method, often ends up paying dramatically more than it needs to.
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