Delaware General Assembly

Signed 1/27/16

The General Assembly has ended, the current status is the final status.

1/8/16

Longhurst

Sen. Blevins, McBride, Henry, F Simpson, Lavelle, McDowell, Sokola, Bushweller, Cloutier, Poore, Townsend
Reps. Schwartzkopf, Viola, D. Short, Hudson, Keeley, Q. Johnson, M. Smith, Bolden, Brady, Briggs King, Carson, Heffernan, Hensley, Jaques, Miro, Mulrooney, Paradee, Ramone, B. Short, Yearick

Reps. Collins, Dukes, Kenton, Mitchell, Spiegelman, Wilson

AN ACT TO AMEND TITLE 30 OF THE DELAWARE CODE RELATING TO BUSINESS TAX COMPUTATIONS AND ADMINISTRATION.

The Delaware Competes Act reforms Delaware’s business tax code to incentivize job creation and investment in Delaware, to make Delaware’s tax structure more competitive with other states, and to support small businesses by making tax compliance less burdensome. The principal change in the Act is to remove disincentives for companies to create Delaware jobs and invest in Delaware property that currently exists in how income is apportioned to Delaware for purposes of the corporate income tax. Apportionment is the process by which multi-state firms determine what share of their total income is “assigned” to Delaware. Currently, income is apportioned to Delaware using three factors: a) property; b) payroll; and c) sales. These factors are expressed as a fraction with Delaware’s share in the numerator and the total amount in the denominator. These three equally weighted fractions are then averaged to arrive at the ultimate Delaware apportionment percentage. The use of property and payroll in this calculation is often criticized because companies that add employment or facilities in Delaware often see their Delaware apportionment rise, which ultimately results in higher Delaware corporate income taxes for such companies. Sections 7 and 8 of this Act reduce and then eliminate the disincentive to invest in property and employees in Delaware by first doubling the weight on the sales factor in tax year 2017 and then by gradually moving toward relying exclusively on the sales factor beginning in 2020. Additionally, Sections 7 and 8 clarify that corporations organized under the laws of foreign countries that do business in the United States may not dilute their property and payroll factors by including property and payroll that is located outside of the United States in the denominator of these fractions. Section 9 provides that, starting in 2017, telecommunications corporations and corporations with their worldwide headquarters located in Delaware that make capital investment in those facilities may use either single sales factors or equally weighted, three-factor apportionment. The remaining sections of the Act ease business tax compliance for Delaware employers, particularly smaller Delaware businesses. Sections 1-4, 6 and 11-21 of this Act simplify business tax compliance for smaller businesses by reducing tax payment and filing burdens. For example, the Act would double the thresholds at which businesses have to make monthly gross receipts tax and withholding filings, enabling hundreds of Delaware businesses to file quarterly instead. The Act also provides that filing thresholds and tax calculations will be indexed for inflation, which locks-in the simplification and efficiency gains for future taxpayers. Sections 5 and 10 of this Act simplify compliance for smaller business. Currently, all corporations must pay 50% of their estimated tax liability for the first quarter of their taxable year, followed by payments of 20%, 20% and 10% in each of their second through fourth quarters. This Act allows smaller businesses with receipts of less than $20 million to make use of a simpler, evenly-weighted (25% per quarter) schedule. Further, this Act updates the calculation for the penalty for underpayment of estimated tax, which has not changed in more than 30 years.

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Takes effect upon being signed into law

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