CHAPTER 315
RELATING TO CORPORATION INCOME TAX
AN ACT TO AMEND CHAPTER 19, TITLE 30, DELAWARE CODE, RELATING TO CORPORATION INCOME TAX.
Be it enacted by the General Assembly of the State of Delaware:
Section 1. Section 1901, Title 30, Delaware Code, is amended as follows:
(c) By changing the definition of "corporation" to read as follows:
"Corporation" includes a joint stock company or any association which is taxable as a corporation under the federal income tax law.
(d) By eliminating the definition of "entire net income".
(e) By inserting the following paragraph after the definition of "foreign corporations":
"Federal income tax" means the tax imposed on corporations by the federal Internal Revenue Code of 1954 (Title 26, U. S. C. A. 1954) as now enacted or as it may hereafter be amended from time to time.
(f) By inserting the following paragraph after the definition of "taxpayer":
"Treasury Department" means the Treasury Department of the United States.
Section 2. Subsection (a) of section 1902, Title 30, Delaware Code, is amended to read as follows:
(a) Every domestic or foreign corporation that is not exempt under subsection (b) of this section shall annually pay a tax of five per cent on its taxable income, computed in accordance with section 1903 of this title, which shall be deemed to be its net income derived from business activities carried on and property located within Delaware during the income year. Any receiver, referee, trustee, assignee or other fiduciary, or any officer or agent appointed by any court, who conducts the business of any corporation, shall be subject to the tax imposed by this chapter in the same manner and to the same extent as if the business were conducted by the corporation.
Section 3. Subsection (b) of section 1902, Title 30, Delaware Code, is amended by adding at the end thereof:
8. Corporations whose activities within Delaware are confined to the maintenance and management of their intangible investments and the collection and distribution of the income from such investments or from tangible property physically located outside of Delaware.
Section 4. Section 1903, Title 30, Delaware Code, is amended to read as follows:
§ 1903. Computation of taxable income
(a) The "entire net income" of a corporation for any income year means the amount of its federal taxable income for such year as computed for purposes of the federal income tax, adjusted by eliminating
1. any deduction for the tax imposed by this chapter or for any net operating loss sustained prior to January 1, 1958;
2. dividends received on shares of stock or voting trust certificates;
3. interest income (including discount) other than interest on notes, bonds, accounts receivable, conditional or other sales contracts, or other instruments which evidence obligations to pay money, not regularly traded on a securities exchange or in an over-the-counter securities market, acquired in the regular and usual course of business by corporations engaged in the business of selling goods or services, lending money, financing the purchase of goods or purchasing commercial paper or evidences of indebtedness arising from the sale of goods or services; provided that an obligation representing an advance or loan between corporations which are members of an affiliated group of corporations, as defined in section 1906 of this title, shall not be deemed to have been acquired in the course of the taxpayer's business, if the debtor corporation agrees to eliminate the interest paid thereon in determining its entire net income;
4. gains and losses from the sale or other disposition of stocks, securities, and other intangible assets not held primarily for sale to customers in the course of the corporation's business.
(b) "Taxable income" subject to taxation under this chapter means the portion of the entire net income of a corporation which is allocated and apportioned to the State of Delaware in accordance with the following provisions:
1. Rents and royalties (less applicable or related expenses) from tangible property shall be allocated to the state in which the property is physically located.
2. Patent and copyright royalties (less applicable or related expenses) shall be allocated proportionately to the states in which the product or process protected by the patent is manufactured or used, or in which the publication protected by the copyright is produced or printed.
3. Gains and losses from the sale or other disposition of real property shall be allocated to the state in which the property is physically located.
4. Gains and losses from the sale or other disposition of tangible property for which an allowance for depreciation is permitted for federal income tax purposes shall be allocated to the state where the property is physically located or is normally used in the taxpayer's business.
5. Gains and losses from the sale or other disposition of intangible property, to the extent included in determining entire net income, shall be allocated to the commercial domicile of the corporation.
6. Interest (including discount), to the extent included in determining entire net income under subsection (a) of this section, less related or applicable expenses, shall be allocated to the state where the transaction took place which. resulted in the creation of the obligation with respect to which the interest was earned.
7. If the entire business of the corporation is transacted or conducted within the State of Delaware, the remainder of its entire net income shall be allocated to Delaware. If the business of the corporation is transacted or conducted in part without the State of Delaware, such remainder shall be apportioned to the State of Delaware on the basis of the ratio obtained by taking the arithmetic average of these three ratios:
(A) The average of the value, at the beginning and end of the income year, of all the real and tangible personal property, owned or rented, in the State of Delaware by the taxpayer, expressed as a percentage of the average of the value, at the beginning and end of the income year, of all such property of the taxpayer both within and without the State of Delaware, provided that any property, the income from which is separately allocated under paragraph 1 of this subsection, or which is not used in the taxpayer's business, shall be disregarded. For the purposes of this paragraph, property owned by the taxpayer shall be valued at its original cost to the taxpayer; and property rented by the taxpayer shall be valued at eight times the annual rental.
(B) Wages, salaries and other compensation paid by the taxpayer to employees within the State of Delaware, except general executive officers, during the income year expressed as a percentage of all such wages, salaries and other compensation paid within and without the State of Delaware during the income year to all employees of the taxpayer, except general executive officers.
(C) Gross receipts from sales of tangible personal property physically delivered within this State to the purchaser or his agent (but not including delivery to the United States mail or to a common or contract carrier for shipment
to a place outside Delaware), and gross income from other sources within this State for the income year expressed as a percentage of all such gross receipts from sales of tangible personal property and gross income from other sources 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 6 of this subsection shall be disregarded.
(c) If the allocation and apportionment provisions set forth in this section assign more than a fair and equitable proportion of the taxpayer's entire net income to this State, the Tax Commissioner, in his discretion may permit the exclusion of any one or more of the factors specified above, or the inclusion of one or more additional factors, or both; or the use of a separate accounting or of any other method necessary to produce a fair and equitable result.
(d) In determining the taxable income of a fiscal year taxpayer for that portion of its fiscal year ending within 1958 which falls within the calendar year 1958, the taxpayer may at its election treat such period as though it were the entire fiscal year, or it may compute its taxable income for the entire fiscal year and pay the tax herein imposed on that portion of the taxable income so determined which the number of days from January 1, 1958 to the close of the fiscal year in 1958 bears to 365.
Section 5. Subsection (b) of section 1905 of Title 30, Delaware Code is amended by striking out everything after the word "provided" and inserting in lieu thereof the following: "that every fiscal year corporation shall, on or before the first day of the fourth month following the close of its fiscal year ending in 1958, file a return and pay the tax imposed on its taxable income for such year, computed as provided in section 1903 (d) of this title."
Section 6. Section 1907, Title 30, Delaware Code, is amended by changing the figure "30" contained therein to the figure
449010.
Section 7. Section 1908 of Title 30, Delaware Code, is amended to read as follows:
§ 1908. Assessment and collection of deficiencies; notice; petition for redetermination of deficiency
(a) As soon as practicable after a return is filed, the Tax Commissioner shall examine it, and shall determine the correct amount of tax. If the tax found due shall be greater than the amount shown on the return to be due, notice of the deficiency shall be mailed to the taxpayer by registered mail. Within thirty days after such notice is mailed the taxpayer may file a petition with the Tax Commissioner for a redetermination of the tax. The taxpayer shall be granted a hearing, where it is requested in the petition. If the taxpayer does not file a timely petition with the Tax Commissioner, final assessment of the deficiency shall be made and shall be paid within ten days after notice and demand from the Tax Commissioner.
(b) If the taxpayer files a timely petition with the Tax Commissioner, the amount redetermined as the deficiency by the Tax Commissioner--even though larger than the amount shown in the previous notice thereof--shall be assessed. The assessment shall become final upon the expiration of thirty days after notice has been given to the taxpayer by registered mail unless the taxpayer has, prior to the expiration of such period, filed an appeal to the Tax Board for a redetermination of the assessment. If an appeal to the Tax Board for a redetermination of the assessment has been filed, the deficiency, if any, found by the Tax Board or by the Superior Court, if an appeal is made from the determination of the Tax Board in accordance with the provisions of section 328 of this title, shall be finally assessed, and shall be paid within ten days of the date of notice thereof to the taxpayer by registered mail.
() No proceeding in court for the collection of a deficiency shall be begun until the assessment is final and until the time prescribed for the payment of the assessment has expired.
() If the taxpayer is notified that because of a mathematical error appearing upon the face of the return an amount of tax in excess of that shown upon the return is due, then, notwithstanding the provisions of subsections (a) and (b) of this section, such excess shall be paid within ten days after such notice is mailed to the taxpayer.
(e) A "deficiency" means the amount (other than an amount described in subsection (d) of this section) by which the tax imposed by this law exceeds the amount shown as the tax by the taxpayer upon its return, or if no amount is shown as the tax by the taxpayer upon its return, or if no return is made by the taxpayer, the amount determined by the Tax Commissioner to be the correct amount of the tax.
Section 7. Section 1909 of Title 30 of the Delaware Code is amended to read as follows:
§ 1909. Period of limitation upon assessment
(a) Except as provided below, the amount of tax imposed by this chapter shall be assessed within three years after the last day prescribed for filing the return or, if later, the date the return was filed.
(b) In the case of a false or fraudulent return with intent to evade tax, or a failure to file a return, the tax may be assessed at any time.
(c) Where before the expiration of the time prescribed in subsection (a) of this section for the assessment of the tax, both the Tax Commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.
(d) If the amount of taxable income reported for federal income tax purposes for any year is changed or corrected by the Treasury Department, nothing herein shall prevent the Tax Commissioner from assessing any additional tax that is attributable to such change or correction at any time prior to the expiration of one year after the report required by section 1907 of this title is filed.
Section 8. Section 1910 of Title 30, Delaware Code, is renumbered Section 1915 and a new Section 1910 is inserted to read as follows:
§ 1910. Interest and additions to the tax in case of deficiencies
(e) Interest upon the amount determined as a deficiency, at the rate of one-third of one per cent per month or fraction of a month from the date prescribed for the payment of the tax to the date the deficiency is assessed, shall be assessed at the same time as the deficiency and shall be paid within ten days after notice and demand from the Tax Commissioner.
(f) If any part of any deficiency is due to negligence, but without intent to defraud, five per centum of the total amount of the deficiency (in addition to such deficiency) shall be assessed, collected, and paid in the same manner as if it were a deficiency.
(g) If any part of any deficiency is due to fraud with intent to evade tax, then 100 per centum of the total amount of the deficiency (in addition to such deficiency) shall be assessed, collected, and paid in the same manner as if it were a deficiency.
(h) In case of an underpayment of the tax required to be paid at the time a tentative return is filed, there shall be added to the tax for the taxable year interest at the rate of one-third of one per cent upon the amount of the underpayment for each month or fraction thereof during which the tentative tax remains unpaid. The amount of the underpayment shall be the excess of--
(1) the amount of the payment which would be required to be made if the estimated tax were equal to 70 per cent of the tax shown on the final return for the income year or, if no return was filed, 70 per cent of the tax for such year, over
(2) the amount paid.
Notwithstanding the foregoing, there shall be no addition to the tax if the tentative tax payment equals or exceeds the amount which would be due if the estimated tax for the income year were equal to whichever of the following amounts is the lesser--.
(1) the tax shown on the return of the taxpayer for the preceding income year; or
(2) an amount equal to 70 per cent of the tax for the income year computed by placing on an annualized basis the taxable income for the first two months of the income year.
Section 9. Section 1911 of Title 30, Delaware Code, is renumbered as Section 1916 and a new Section 1911 is inserted to read as follows:
§ 1911. Addition to the tax in case of non-payment
(a) Where the amount determined by the taxpayer as the tax imposed by this law, or any part of such amount, is not paid on or before the date prescribed for its payment, there shall be collected interest upon such unpaid amount at the rate of one-third of one per cent per month or a fraction of a month from the date prescribed for its payment until it is paid.
(b) Where a deficiency, or any interest, penalty, or additional amount assessed in connection therewith, is not paid in full within ten days from the date of notice and demand from the Tax Commissioner, there shall be collected interest upon the unpaid amount at the rate of one third of one per cent per month or fraction of a month from such date until it is paid.
Section 10. Section 1912 of Title 30, Delaware Code, is amended to read as follows:
§1912. REFUNDS
(a) Where there has been an overpayment of any tax imposed by this chapter for any income year, the amount of such overpayment may be credited against any liability in respect of any income tax or installment thereof (whether such tax was assessed as a deficiency or otherwise), on the part of the taxpayer who made the overpayment, and the balance shall be refunded to such taxpayer. Unless the taxpayer has theretofore filed a claim therefor with the Tax Commissioner, no such credit or refund shall be allowed after the expiration of six months following the expiration of the period during which the Tax Commissioner may, under Section 1909 of this Title, make an assessment (except in the case of a false or fraudulent return) of additional tax for such a year.
(b) A claim for refund shall be deemed to be filed within the period prescribed in subsection (a) of this section, if based upon a change or correction of the taxable income reported for federal income tax purposes and is filed within one year after the taxpayer has agreed to such changes or corrections.
(c) If the Tax Commissioner rejects the claim in whole or in part, or fails to act upon it within six months from the filing of such claim, the taxpayer may appeal to the Tax Board. The taxpayer may appeal from the determination of the Tax Board in accordance with the provisions of Section 328 of this title.
(d) Interest shall be allowed and paid upon such overpayment at the rate of one-third of one per cent per month or fraction of a month from 90 days after the date of such overpayment was made until the date of refund.
Section 11. Section 1913, Title 30, Delaware Code is amended to read as follows:
§ 1913. Penalties--late filing, failure to file returns, false and fraudulent return, failure to maintain records
(a) Any person who willfully fails, neglects, or refuses to make a return or to pay the tax as herein prescribed, or who shall refuse to permit the Tax Commissioner to examine the books, papers and records of any corporation liable to pay tax under this chapter, shall be fined not more than $500 or imprisoned not more than six months or both. Such penalty shall be in addition to any other penalties imposed by this chapter.
(b) Any person, who shall willfully make a false and fraudulent return of net income made taxable by this chapter shall be fined not more than $500 or imprisoned not more than 6 months or both. Such penalty shall be in addition to any other penalties imposed by this chapter.
(c) Any corporation which fails to maintain and keep for a period of five years after any return is filed under this chapter, such record or records of its business within this State for the period covered by such return as may be required by the Tax Commissioner, shall be fined $500. Such penalty shall be in addition to any other penalties imposed by this chapter.
(d) The Superior Court shall have exclusive jurisdiction of all offenses under this chapter.
Section 12. Section 1914, Title 30, Delaware Code is amended to read as follows:
§ 1914. Court action to compel furnishing of information
If any corporation, or any officer or employee thereof required under this law to pay any tax or make any return shall refuse to supply any information or exhibit any books or records when requested to do so by the Tax Commissioner or his agent, the Superior Court shall have jurisdiction by appropriate process to compel such testimony or production of books, papers, or other data.
Section 13. Section 1915, Title 30, Delaware Code, is renumbered as Section 1917.
Section 14. Section 1916, Title 30, Delaware Code, is renumbered as Section 1918.
Section 15. Section 1917, Title 30, Delaware Code, is renumbered as Section 1919.
Section 16. Section 1918, Title 30, Delaware Code, is renumbered as Section 1920.
Approved February 5, 1958.