Delaware General Assembly

AN ACT TO AMEND TITLE 5 OF THE DELAWARE CODE PERTAINING TO THE DELAWARE BANK FRANCHISE TAX AND TITLE 30 OF THE DELAWARE CODE PERTAINING TO THE DELAWARE CORPORATION INCOME TAX.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE :

“In applying paragraph (7) of subsection (b) of §1903 of this title to such corporation, the ratio described in such paragraph (7) of such corporation shall be determined by including in such ratio the corporation’s distributive share of each relevant item of such pass-through entity.”

“(1) ‘Administration services’ means, in each case with respect to intangible investments (as such term is defined in §1902(b)(8) of this title), (a) clerical, (b) accounting, (c) bookkeeping, (d) data processing, (e) internal auditing, (f) tax services, (g) regulatory compliance, operations and related services, (h) risk analytics, and (i) trade processing, clearing and execution services.

(2) ‘Asset management corporation’ means a corporation (i) 90% or more of the gross receipts of which are derived from the performance of asset management services, (ii) that is not exempt from taxation under this chapter pursuant to §1902(b)(8) of this title and (iii) that makes an election for each taxable year to be treated as an asset management corporation by filing the appropriate form of return prescribed by the Director to make such election. For purposes of this subdivision, “gross receipts” shall mean gross receipts reported by the corporation for its taxable year for purposes of the federal income tax.

(3) ‘Asset management services’ means, in each case with respect to intangible investments (as such term is defined in §1902(b)(8) of this title), (a) rendering investment advice, including investment analysis, (b) making determinations as to when sales and purchases are to be made, (c) selling or purchasing of intangible investments, (d) rendering administration services, (e) rendering distribution services or (f) managing contracts for sub-advisory services.

(7) ‘Distribution services’ means, in each case with respect to intangible investments (as such term is defined in §1902(b)(8) of Title 30 of the Delaware Code), (a) advertising, (b) servicing investor accounts (including redemptions), (c) marketing shares or selling shares of corporations or business trusts registered as investment companies under the Investment Company Act of 1940 (15 U.S.C. §80a-1 et seq.), and (d) marketing asset management services (including selling interests in a pool of intangible investments, such as a fund).

(9) ‘Domicile’ means, (a) in the case of an individual, the State of the individual’s domicile under the law of Delaware; (b) in the case of an estate, this State, if the estate is a resident estate under §1601 of this title, and outside of this State, if the estate is a nonresident estate under §1601 of this title; (c) in the case of a trust (as defined in §1601(9) of this title), this State, if the trust is a resident trust under §1601 of this title, and outside of this State, if the trust is a nonresident trust under §1601 of this title; (d) in the case of a corporation or a pass-through entity (as defined under §1601(6)a. of this title), its commercial domicile; provided, however, domicile shall be presumed to be the mailing address of the beneficiary of a pension plan, or the owner of an account or interest in a pool of intangible investments based on the records of the sponsor of such pension plan, account or pool of intangible investments or the shareholder’s mailing address on the records of an investment company under the Investment Company Act of 1940 (15 U.S.C. §80a-1 et seq.).

(13) ‘Risk Analytics’ means performing risk analysis of intangible investments (as such term is defined in §1902(b)(8) of this title), providing reports of such analyses and providing interactive, software-based risk analytical tools to users of such tools.

(15) ‘Sponsor’ means the person that has contracted directly with the beneficiaries of a pension plan or retirement account or the owner of any account or interest in a pool of intangible investments to administer and manage the pension plan or retirement account, other account or pool of intangible investments.”

Section 5. Amend §1903(b)(6) of Title 30 by striking the numeral and punctuation “(6)” in subparagraph c. of that paragraph and by replacing that numeral and punctuation with the numeral and punctuation “(5)” and by adding a new sentence after subparagraph c. as flush material to read as follows: “This paragraph 6 shall not apply in the case of an asset management corporation.”

“(7) The remainder of the entire net income of an asset management corporation shall be apportioned to this State on the basis of the ratio of gross receipts from asset management services from sources within this State for the income year expressed as a percentage of all such gross receipts from asset management services both within and without the State for the income year; provided, that any receipts or items of income that are excluded in determining the taxpayer's entire net income or are directly allocated under paragraphs (1) to (5) of this subsection shall be disregarded. The source of gross receipts from asset management services shall be determined as follows:

a. In the case of asset management services provided directly or indirectly to an individual, gross receipts with respect to such services shall be sourced to the State of the individual’s domicile.

b. In the case of asset management services provided directly or indirectly to an institutional investor holding investments for the benefit of others, such as a pension plan, retirement account or pool of intangible investments, including a fund (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. §80a-1 et seq.)), or to an institutional investor organized as a pass-through entity (as defined in §1601(6)a. of this title), gross receipts with respect to such services shall be sourced according to the following rules in the following order:

(i) if information regarding domicile of beneficiaries, owners or members is available to the asset management corporation providing asset management services to a pension plan, retirement account or pool of intangible investments, including a fund (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. §80a-1 et seq.)), or to an institutional investor organized as a pass-through entity (as defined in §1601(6)a. of this title) through the exercise of reasonable diligence in ascertaining such information, gross receipts with respect to such services shall be sourced to the domicile of such beneficiaries, owners or members;

(ii) if information regarding domicile of beneficiaries, owners or members is not available to the asset management corporation providing asset management services to a pension plan, retirement account or pool of intangible investments, including a fund (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. §80a-1 et seq.)), or to an institutional investor organized as a pass-through entity (as defined in §1601(6)a. of this title) through the exercise of reasonable diligence in ascertaining such information, a reasonable alternative method based on information readily available to the asset management corporation may be used to determine the source of gross receipts with respect to such services, and such reasonable alternative method shall be disclosed and explained in the return in which the method is used. The burden of demonstrating the reasonableness of the method rests on the taxpayer. Based on facts and circumstances in specific cases, reasonable alternative methods used to determine the source of gross receipts from asset management services may take into account the latest population census data available from the United States Census Bureau, the domicile of the sponsor of a pension plan or retirement account or an account or pool of intangible investments (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. §80a-1 et seq.)) or the domicile of an institutional investor organized as a pass-through entity (as defined in §1601(6)a. of this title); or,

(iii) if

(A) the domicile of beneficiaries, owners or members is not ascertained under clause (7) b. (i); or,

(B) no reasonable alternative sourcing method exists under clause (7) b. (ii), gross receipts with respect to such services shall be sourced to the domicile of the institutional investor or the domicile of the sponsor of a pension plan or retirement account or an account or pool of intangible investments, including a fund (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. §80a-1 et seq.)), to which asset management services are provided.

c. In the case of asset management services provided directly or indirectly to an investment company under the Investment Company Act of 1940 (15 U.S.C. §80a-1 et seq.), gross receipts with respect to such services shall be sourced to the domicile of the shareholders of such investment company in accordance with the following procedure: the portion of the gross receipts with respect to such services that are sourced to this State shall be determined by multiplying the total of such gross receipts by a fraction, the numerator of which is the average of the sum of the beginning of year and the end of year balance of shares owned by the investment company shareholders domiciled in this State for the investment company’s taxable year for federal income tax purposes and the denominator of which is the average of the sum of the beginning of year and the end of year balance of shares owned by all investment company shareholders. A separate computation shall be made with respect to gross receipts for asset management services provided directly or indirectly to each investment company.

d. In the case of asset management services provided directly or indirectly to a person other than those persons described in subparagraphs a. through c. of this paragraph (7), to the domicile of such person.”

Approved June 3, 2008