CHAPTER 147
STATE REVENUE
INCOME TAX
AN ACT TO AMEND CHAPTER 6 OF THE REVISED CODE OF DELAWARE, 1935, (ARTICLE 12 OF SAID CHAPTER) BY PROVIDING FOR A TAX ON INCOMES COMMENCING JANUARY 1, 1949; PROVIDING FOR THE ASCERTAINMENT, ASSESSMENT AND COLLECTION THEREOF; PROVIDING PENALTIES FOR THE VIOLATION OF THE TERMS OF THIS ACT; MAKING AN APPROPRIATION TO THE STATE TAX DEPARTMENT FOR ADMINISTRATION EXPENSES IN CONNECTION THEREWITH; AND PROVIDING THAT THE TAX ON NET INCOMES IMPOSED BY SAID CHAPTER 6 OF THE REVISED CODE OF DELAWARE, 1935, SHALL NOT BE LEVIED AND COLLECTED ON INCOMES ACCRUING ALTER DECEMBER 31, 1948.
Be it enacted by the Senate and House of Representatives of the State of Delaware in General Assembly met:
Section 1. As used in this Article, the following words and phrases are defined as follows:
(a) The phrase "Income Tax" means the tax imposed by Section 2 (a) hereof.
(b) The word "Taxable" means:
(1) A natural person twenty-one years of age or over who is a resident or citizen of the State of Delaware or who has been a resident or citizen of the State of Delaware at any time during the income year.
(1) A minor with gross income of One Thousand and Forty Dollars ($1040.00) or more who is a citizen or resident
of the State of Delaware, or who has been a citizen or resident of the State of Delaware at any time during the income year.
(3) Every trustee of a trust whether created by a resident or non-resident of Delaware, to the extent that the income of the trust is accumulated or distributed during the taxable year to or for the benefit of a resident of the State of Delaware.
(4) Every trustee of a trust created by a resident of Delaware to the extent that the income of the trust is accumulated during the taxable year for residents of Delaware who have contingent interests, or for unascertained persons, or is subject to withdrawal by the creator of such trust.
(5) Every guardian of the property of a person who during the taxable year was a resident of the State of Delaware and every executor or administrator of the estate of a deceased resident of Delaware.
(6) Any officer or employee of the State of Delaware or any political sub-division of Delaware.
(7) Every natural person who is a non-resident of the State of Delaware if, but only to the extent that, such person received income during the taxable year as compensation for personal services currently rendered in the State of Delaware as a regular employee in the conduct of the business of an employer in the State of Delaware and/or to the extent that such person derived net profits from a profession, vocation, business, trade or commerce regularly conducted in the State of Delaware.
(c) The words "Income Year" mean the calendar year or the fiscal year on the basis of which the income is computed under this Article.
(d) The term "Gross Income" shall include:
(1) The aggregate of all amounts received, accrued, paid
to or credited subject to withdrawal as compensation for personal services, dividends, interest, profits derived from professions, vocations, business, trade, commerce and rentals and including profits in an unincorporated association of persons, syndicate, joint venture or co-partnership whether such profits have been divided or otherwise.
(2) Any income from salaries, wages, fees or pensions received from the United States, or from any corporation, stock of which is owned or controlled by the government of the United States or any department, bureau or agency thereof.
(2) Dividends and interest derived from maturity or cancellation of shares in Building and Loan Associations, and endowment contracts.
(2) Amounts recovered during the income year from bad debts that have been deducted from income in any return of income to this State.
(e) The word "Dividends" means any distribution made by a corporation, joint stock company or association out of its earnings or profits paid to or subject to withdrawal by its shareholders during the income year, whether in cash or property, but does not mean a distribution of earnings or profits accrued prior to January 1, 1920, or a distribution of capital stock of the corporation, joint stock company or association making the distribution. Every distribution shall be deemed to be made out of earnings or profits to the extent thereof, and from the most recently accumulated earnings or profits.
() Gross income shall be accounted "actually received into possession" when cash, check, scrip certificate or other evidence of ownership has been received by the owner or by his agent, or representative or by a fiduciary.
Gross income shall be accounted "credited subject to withdrawal" when the taxable credited, or his agent, representative or fiduciary has the right or option to make withdrawal.
(a) (1) "Capital assets" means property held by the taxable whether or not connected with his trade or business, but
does not include stock in trade of the taxable or other property of a kind which would properly be included in the inventory of the taxable, if on hand at the close of the taxable year, or property held by the taxable primarily for sale to customers in the ordinary course of his trade or business.
(2) For the purposes of this Act, stock in trade shall not include stocks, bonds, or other securities.
(h) (1) The term "Withholding Agent" means and includes any individual, receiver, trustee, guardian, executor or administrator, institution, bank, firm, partnership, society, club, fraternity, sorority, lodge, corporation, municipal corporation, or any other political subdivision of the State making payment of salaries, wages, pensions, fees, commissions and other compensation of whatever kind and in whatever form paid or credited to any taxable for personal services provided that such personal services were rendered as a regular employee in the conduct of the business of an employer in the State of Delaware.
(2) The term "Compensation for Personal Services" means all remuneration for services performed by an employee including the fair market value of all remuneration paid in any medium other than cash and shall include salaries, wages, bonuses, pensions, fees and commissions.
Section 2. (a) For taxable years beginning after December 31, 1948 and ending December 31, 1950 there shall be levied, assessed, collected and paid by every taxable, in lieu of the tax imposed by Section 111 (a) of Article 12, Chapter 6, Revised Code of Delaware, 1935, as amended, a tax on the gross income received, accrued or credited subject to withdrawal by such taxable in such calendar year, subject to the exemptions, credits and deductions provided for in Section 3 and Section 4, to be computed as follows:
One and a quarter per centum (114 To) of the amount of gross income not in excess of Three Thousand Dollars ($3,000.00) ; two and a quarter per centum (2M %) of the amount of gross income in excess of Three Thousand Dollars ($3,000.00) but not in excess of Ten Thousand Dollars
($10,000.00); three and a quarter per centum (31/4 %) of the amount of gross income in excess of Ten Thousand Dollars ($10,000.00) but not in excess of Twenty Thousand Dollars ($20,000.00); four and a quarter per centum (41/4 %) of the amount of gross income in excess of Twenty Thousand Dollars ($20,000.00) but not in excess of Thirty Thousand Dollars ($30,000.00); five and a quarter per centum (51/4%) of the amount of gross income in excess of Thirty Thousand Dollars ($30,000.00) but not in excess of Fifty Thousand Dollars ($50,000.00); and six and a quarter per centum (61/4%) of the amount of gross income in excess of Fifty Thousand Dollars ($50,000.00).
(b) For the quarterly period beginning July 1, 1949 and ending December 31, 1950 and each quarterly period thereafter, every withholding agent shall deduct, withhold and pay over to the State Tax Department on or before the last day of the month following the close of each quarterly period a tax computed according to the rates set out in sub-section (a) of this section on the compensation paid within each quarter for personal services of any taxable in excess of the exemptions and credits. For withholding purposes, every taxable shall be entitled to a personal exemption of Twenty Dollars ($20.00) per week plus a credit of Ten Dollars ($10.00) per week for each dependent as defined in Section 3 (b) (2) of this Law. The taxes shall be withheld on the basis of each payroll period, that is, weekly, bi-weekly, semi-monthly or monthly, but if, in any case, there is no regularly specified payroll period, then such tax shall be withheld on a per diem basis. Every taxable from whose compensation a tax is to be withheld under this sub-section shall file with the Withholding Agent on or before June 1, 1949, or if employed subsequent to June 1, 1949 at the time of employment, a signed exemption certificate on the form to be provided by the State Tax Department for that purpose indicating the number of exemptions and credits to which he is entitled under this Act. The tax so withheld and paid by the Withholding Agent to the State Tax Department shall constitute payments on account of the tax imposed by sub-section (a) of this section and shall be allowed as a credit against the total tax on the return of the taxable from whose compensation such tax was withheld. Any amount withheld which is in excess of the total
amount of tax, interest and penalties due under this Act shall be refunded to the taxable in the manner provided in 159 Section 125, Revised Code of Delaware, 1935, as amended. Quarterly withholding returns shall be filed on the forms prescribed by the State Tax Department for that purpose and shall be accompanied by a remittance of the Withholding Agent in payment of the amount of tax withheld during each quarterly period.
Section 2. (b) (1). At the election of the Withholding Agent with respect to any taxable, the Withholding Agent shall deduct and withhold from the compensation paid to such taxable, in lieu of the taxes required to be paid and withheld under sub-section (b) of this Section, a tax to be determined in accordance with the following tables: Section 2. (b) (2). In computing the tax according to the tables set forth in Section 2 (b) (1) each taxable shall be entitled to two (2) withholding exemptions in his or her own right and shall be entitled to one (1) withholding exemption for each dependent.
(c) A taxable during part of an income year, shall be taxed on the gross income received during such part of the income year only, or, if that amount cannot be determined shall be taxed for a part of the whole gross income proportionate to the part of the year in which such entity has been a taxable.
(d) In the case of the death of a taxpayer there shall be included in computing gross income for the taxable period in which falls the date of his death, only amounts received or credited subject to withdrawal during such period, except, in the case of a taxpayer whose income is computed upon the basis of the accrual method of accounting, amounts (except amounts includible in computing a partner's gross income) accrued only by reason of the death of the taxpayer shall not be included in computing gross income for the period in which falls the date of the taxpayer's death.
(d) (1) All income accrued by reason of death only, as set forth in paragraph (d) of this Section shall constitute taxable income of the estate when received by it or of a beneficiary when received by him and not previously included in the return of the estate.
(e) The gross income shall be computed upon the basis of the taxable's annual accounting period, fiscal year or calendar year as the case may be, in accordance with the method of accounting regularly employed in keeping the books of such taxable; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income.
does not keep books, the gross income shall be computed on the basis of the calendar year.
(f) Whenever in the opinion of the Commissioner the use of inventories is necessary in order clearly to determine the income of any taxable, inventories shall be taken by such taxpayer upon such basis as the Commissioner shall prescribe, and conforming as nearly as may be to the best accounting practice in the trade or business, and as most clearly reflecting the income.
Section 3. (a) The following income shall be exempt from income tax:
(1) The proceeds of life insurance policies paid upon the death of the insured to any taxable, including the increment or interest on installment payments, whether the election for installment payments was made by the insured or by the beneficiary after the death of the insured.
(2) The amount received by the insured as a return of premium or premiums paid by him under life insurance, endowment or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon the surrender of the contract.
(3) The value of property acquired by gift, bequest, devise or inheritance but the income received from such property after its acquisition shall be included in taxable income.
(4) Interest upon the obligations of the State of Delaware or any political subdivision thereof or upon the obligations of the District of Columbia, of the United States or of its possessions.
(5) Dividends paid out of earnings or profits accrued prior to January 1, 1920.
(6) Dividends paid in the capital stock of the corporation, joint stock company, or association which has declared and authorized the distribution.
(7) The amount received as alimony or support from a person who has paid tax thereon under this Article.
(8) Any amounts paid to injured employees or to the dependents of deceased employees under the terms of "The Delaware Workmen's Compensation Law."
(0) Amounts received, through accident or health insurance as compensation for personal injuries or sickness, and the amount of any damages received whether by suit or agreement on account of personal injuries or sickness.
(0) Amounts received as a pension, annuity or similar allowance for personal injuries or sickness resulting from active service in the armed forces of the United States.
(1) Gain from the sale or exchange of capital assets.
(2) Amounts received under the G. I. Bill of Rights by former members of the armed forces of the United States in World War II.
(3) Amounts received as old age and survivor benefits under the Federal Social Security Law or as aid to dependent children, old age assistance or aid to the needy blind under the laws of the State of Delaware.
(b) (1) Every taxable shall be entitled to a personal exemption of One Thousand and Forty Dollars ($1040.00).
(2) There shall be a credit of Five Hundred and Twenty Dollars ($520.00) for each person (including husband or wife) dependent upon and receiving his or her chief support from the taxpayer if such dependent person (other than husband or wife) is under twenty years of age or is incapable of self-support because mentally or physically defective.
(3) In the case of death or separation of husband or wife, the exemption and credits authorized shall be apportioned to the time of death or separation. A separated wife or husband shall be allowed an exemption of One Thousand and Forty Dollars
($1040.00) and a credit of Five Hundred and Twenty Dollars ($520.00) for each dependent. In no case shall the total exemption and credits for any year exceed that which would have been allowed had the death or separation not occurred.
(4) If, through death, change of residence or otherwise, a taxable is required to report income for a portion of the year only, exemptions, credits and deductions sustained during the said portion of a year shall be allowed, provided that if such deductions cannot be accurately ascertained for the taxable period, a proportionate part of the deductions for the whole year shall be allowed.
Section 4. In computing gross income, the following deductions, if incurred and actually paid or accrued during the calendar year by the taxable in carrying on any business operated for profit or in connection with real estate held for income producing purposes, shall be allowed:
(1) The ordinary and necessary expenses.
(3) Taxes, except Federal income taxes, taxes imposed by this Act and taxes assessed for local benefits of a kind tending to increase the value of the property assessed.
(4) A reasonable allowance for the exhaustion, wear and tear, obsolescence and depletion of property arising out of its use or employment in the trade or business of the taxpayer.
(5) Losses sustained during the income year in the operation of farms or in other agricultural, horticultural, dairy or poultry pursuits or in the raising or preparation of animals, birds, poultry, vegetables, fruit, fish or seafood for the market. Depreciation of buildings or other property used in such operations may be included in losses incurred but no personal or household expenses of the owner or manager of the operation or of his family shall be included in such losses.
(6) Debts ascertained during the income year to be worthless and represented by accounts or bills receivable arising from professional fees, salaries, wages or from sale of merchandise or stock in trade appertaining to the business of the taxable, provided that such accounts or bills receivable have previously and while uncollected been included as income in an income tax return to this State.
(6) In the case of the death of the taxpayer, there shall be allowed for the taxable period in which falls the date of his death, such deductions as are allowable under this Act but only to the extent actually paid during such period, except, in the case of the taxpayer whose income is computed upon the basis of the accrual method of accounting; amounts (except amounts includible in computing a partner's distributable share) accrued only by reason of the death of the taxpayer shall not be allowed as deductions or credits for the period in which falls the date of the taxpayer's death.
TRUSTS AND ESTATES.
Section 5. (a) The tax imposed by this Act shall apply to the income of estates or of any kind of property held in trust whether distributable currently or accumulated for future distribution but only to the extent that such income may be distributable or accumulated for future distribution to a taxable as defined in Section 1. of this Act.
(b) The fiduciary shall be responsible for making the return of income for an estate or trust for which he or it acts. The gross income of the estate or trust shall be computed in the same manner and on the same basis as hereinbefore provided in this Act.
(c) In determining the gross income of an estate or trust under this Section there shall be allowed as a deduction the amount of any gross income properly paid to or credited subject to withdrawal by any legatee, heir or other beneficiary, but such shares of gross income to the extent distributed or distributable to a taxable as defined in Section 1. of this Act shall be included as taxable income on the return of the beneficiary.
(d) Unincorporated associations of persons, syndicates, joint ventures and co-partnerships shall make a return of income for information of the Tax Department. Said return shall show the names and addresses of taxables to whom the gross income received has accrued or has been distributed and the proportionate interest of each taxable in the gross income.
(d) Where any part of the gross income of a trust: (a) is, or in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income may be, applied to the payments of premiums upon policies of insurance on the life of the grantor then such part of the income of the trust shall be included in computing the gross income of the grantor.
(d) As used in this Section, the term "in the discretion of the grantor" means in the discretion of the grantor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of the part of the income in question.
RETURNS TO TAX DEPARTMENT AND PAYMENT OF TAX.
Section 6. (a). Every taxable shall make a return upon the printed form provided by the Tax Department stating specifically the items of gross income, if any, the exemptions, credits and deductions and such other facts as said Tax Department may require.
(1) Returns required to be filed by this Act shall be in such form as the Tax Department shall prescribe, from time to time, and shall be filed by every taxable, with the Tax Department in its main office or at any branch office which it may establish, on or before the thirtieth day of April in each year, for the preceding year. In case of continued sickness, absence or other disability, or whenever in its judgment good cause exists, the Tax Department may allow further time for filing returns. Failure to receive or to secure the blank forms for said return shall not relieve any taxable from the obligation of making the return.
(2) A return shall be signed by the person making the return or by the representative or fiduciary acting for such taxable. The signature shall be the full name, both given name or names, and surname. If a married woman, her own name as well as the name of her husband shall appear.
(3) The Tax Commissioner may require a return to be certified under oath.
(b) Such taxable shall certify to the truth and correctness of the return. The return required by this Section may be made for a taxable, when the taxable is unable to make return, by some other person who shall state the cause of the taxable's inability to file return and, if required shall make oath that he has sufficient knowledge of the affairs of the taxable, for whom he makes the return, to make such return and that the return is true and correct. Such person so making a return for another may be held liable for the penalties provided in Section 129, Revised Code of Delaware, 1935, for makers of false or fraudulent statements or returns, if error is due to his wilful neglect or false statement.
(c) Unincorporated associations of persons and partnerships shall make a return of information as provided in Section 5 (d).
(d) The full amount of the tax payable as the same shall appear on the face of the return, less the amount of said tax withheld in accordance with the provisions of this Act, shall be paid to the Tax Department where the return is filed at the time fixed by law for filing the return, but if the amount of tax payable is more than Ten Dollars ($10.00) the said tax may be paid in four equal installments, as follows:
One-fourth of the amount at the time fixed for filing the return;
One-fourth of the amount on the 30th day of the third month after the time fixed for filing the return;
One-fourth of the amount on the 30th day of the ninth month after the time fixed for filing the return.
(e) All persons, fiduciaries, associations of persons, syndicates, joint ventures, co-partnerships or corporations in whatever capacity acting, including lessees or mortgagors of real or personal property, and employers, making payments to another person of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed and determinable profits, and incomes, of Five Hundred and Twenty Dollars ($520.00) or more in any taxable year, shall render a true and accurate return to the Tax Department, under such regulations and in such form and manner and to such extent as may be prescribed by the Tax Department, setting forth the amount of any and all such payments made to the taxable of the State of Delaware and the names and addresses of the recipients of such payments. The provisions of this sub-section (e) of Section 6 of this Act shall not be applicable whenever withholdings have been made by any employer from the compensation for personal services paid to any employee.
(f) All corporations making payments to a Delaware taxable of dividends amounting to One Hundred Dollars ($100.00) or more in any taxable year shall render a true and accurate return to the Tax Department, under such regulations and in such form and manner and to such extent as may be prescribed by the Tax Department, setting forth the amount of any and all such payments made and the names and addresses of the recipients of such payments.
(g) If the Tax Department shall be of the opinion that any taxable has failed to file a return, or to include in a return filed, either intentionally or through error, items of taxable income, it may require from such taxable a return or a supplementary return, under oath, in such form as it shall prescribe, of all the items of income which the taxable received during the year for which the return is made, whether or not taxable under the provisions of this Article. If from a supplementary return, or otherwise, the Tax Department finds that any items of income,
taxable under this Article, have been omitted to be disclosed to it, under oath of the taxable, and to be added to the original return, such supplementary return and the correction of the original return shall not relieve the taxable from any of the penalties to which he or it may be liable under the provisions of this Article. The Tax Department may proceed under the provisions of 163 Section 129, Revised Code of Delaware, 1935, whether or not it requires a return or a supplementary return under this Section.
OF AMOUNT OF GAIN OR LOSS.
Section 7. (a) (1) A taxable who operates a business which regularly sells or otherwise disposes of property on the installment plan, may at his election report the gain or loss from such sales or other disposition each year as installment payments are received. The amount of income to be included under this election for any income year shall be that proportion of the installment payments actually received in that year which the gross profit realized or to be realized when payment is completed, bears to the total contract price.
(2) If a taxpayer entitled to the benefits of paragraph (1) elects for any income year to report his net income on the installment basis, then in computing his income for the year of change or any subsequent year, amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded.
(2) If an installment obligation is satisfied at other than its face value or distributed, transmitted, sold, or otherwise disposed of gain or loss shall result to the extent of the difference between the basis of the obligation and (A) in the case of satisfaction at other than face value or a sale or exchange--the amount realized, or (B) in case of a distribution, transmission, or disposition otherwise than by sale or exchange--the fair market value of the obligation at the time of such distribution, transmission or disposition. The basis of the obligation shall be the excess of the face value of the obligation over an amount equal to the income which would be returnable were the obligation satisfied in full.
PERSONAL LIABILITY OF WITHHOLDING AGENTS; SUMS WITHHELD DEEMED TRUST FUNDS.
Section 8. (a) Every withholding agent as herein defined who shall fail to withhold and/or pay to the State Tax Department any sum or sums required by this Article to be withheld and paid shall be personally and individually liable therefor to the State of Delaware; and any sum or sums withheld in accordance with the provisions of this Article shall be deemed to be held by the withholding agent in trust for the State of Delaware.
(b) Any person who shall fail to make any return required by this Article to the State Tax Department, or who shall fail to withhold and/or pay any tax required by this Article to the State Tax Department, shall be guilty of a misdemeanor and shall, upon conviction, be fined not more than One Hundred Dollars ($100.00) or be imprisoned not more than six (6) months, or both,. at the discretion of the Court.
(c) The said Tax Department shall be and is hereby authorized to retain out of the sums collected under this Act such amounts as it shall deem necessary to defray the expenses of administering and enforcing the duties prescribed by this Act, until such time as appropriation therefor is provided by the General Assembly.
Section 9. The Provisions of 151 Section 117 and all Sections thereafter up to and including 170 Section 136 of the Revised Code of Delaware, 1935, as amended, shall continue in full force and effect for all purposes of this Act insofar as they are not in conflict herewith.
Section 10. Article 12, Chapter 6 of the Revised Code of the State of Delaware, 1935, as amended, shall be continued in full force and effect as to all taxes, assessments, proceedings,
suits and matters arising out of or in connection with returns required to be made for the year 1948 and all prior years, and shall so continue until such time as all of said taxes, assessments, proceedings, suits and matters shall have been finally collected, determined or disposed of, at which said time Section 110 and all Sections thereafter up to and including Section 116 of the Revised Code of Delaware, 1935, as amended, shall be suspended and become inoperative until the first day of January A. D., 1951.
UNCONSTITUTIONALITY OR INVALIDITY.
Section 11. (a) The provisions of this Act are severable, and if any of its provisions shall be held to be unconstitutional, the decision of the Court shall not affect or impair any of the remaining provisions of this Act. It is hereby declared to be the legislative intent that this Act would have been adopted had such unconstitutional provisions not been included herein..
(b) All Acts or parts of Acts inconsistent with this Act are hereby suspended and made inoperative until the first day of January, A. D. 1951, to the extent of such inconsistency only.
Section 12. There is hereby appropriated to the State Tax Department the sum of Ten Thousand Dollars ($10,000.00), to enable the said State Tax Department to commence operations under this Act. The said sum of Ten Thousand Dollars ($10,000.00) hereby appropriated shall be in addition to all other moneys appropriated to the State Tax Department and shall be a Supplementary Appropriation, to be paid by the State Treasurer during the remainder of the fiscal year ending June 30, 1949, and during the fiscal year beginning July 1, 1949, and ending June 30, 1950, upon warrants of the State Tax Department out of any moneys in the General Fund not otherwise appropriated.