The First State is often the first that comes to mind when entrepreneurs are thinking about where to domicile their company.

While Delaware is a popular state for incorporation, due to its very friendly business laws, it's not entirely a cakewalk when it comes to paying state taxes.

First off, Delaware offers appealing tax rates, but it is not tax-free. Either a domestic stock or a non-stock, for-profit corporation that is incorporated in Delaware must pay an annual franchise tax. It's required even if you have no physical presence in Delaware, and even if you do no business in Delaware (but no filing requirements with the Dept. of Revenue).

The minimum tax for corporations that use the Authorized Shares method is $175. For corporations using the Assumed Par Value Capital Method, the minimum is $350. A yearly tax cap of $180,000 applies to all corporations, regardless of the method used.

Calculate the exact amount of your corporation's yearly tax based on the incorporation method you chose.

A non-stock, for-profit corporation pays $175 in franchise tax.

A corporation that uses the Authorized Shares Method will always have a lower tax than a corporation with no par value stock. To calculate tax for Authorized Shares, use this formula. Those with no more than 5,000 shares pay $175; between 5,001 and 10,000 shares pay $250; each additional 10,000 shares, add $75, capped at $180,000.

The Assumed Par Value Method has more complex rules, and those choosing this method are urged to consult Delaware's site explaining the calculations, as various conditions apply.

The Assumed Par Value Method requires the corporation to provide figures for all issued shares and total gross assets. (Consult the “total assets” figure reported on U.S. Tax Form 1120, Schedule L, Federal Return.) The tax rate is based on $350 for each million, or portion of a million. If the assumed par value capital is less than $1 million, tax is calculated by dividing the assumed par value capital by $1 million, then multiplying the result by $350. The minimum tax is $350 for this method and the maximum tax at $180,000.

Delaware also provides an online franchise tax calculator for determining your specific tax requirements.

Tax forms and payments can be mailed for express service to the Delaware Division of Corporations, John G. Townsend Building, 401 Federal Street, Suite 4, Dover, DE 19901. For regular mail, use P.O. Box 898, Dover, DE 19903. To contact by phone, call (302) 739-3073, option 3. Thankfully staff is readily available to help and hold times are typically much shorter than you get with the California FTB.