Legislation would reform the Delaware Corporate Income tax

Dover, Del. —  HB 235, known as the Delaware Competes Act and sponsored by leadership of both the Democratic and Republican parties of the House and Senate, was introduced in advance of this week’s commencement of the 2016 General Assembly.

The bill would reform the way that the state apportions income tax for corporations to remove elements of the code that are disincentives for new investment and job creation. Under current law, companies that create jobs or invest in property in the state must pay more corporate income tax. While the Delaware Competes Act does not change the tax rate, it changes the apportionment formula to remove those disincentives, and calculates taxable income using the revenue generated by a business’ activities in the state.

The Delaware Competes Act also makes several changes to the code to simplify the filing process for small businesses, and gives them added protection from being penalized for filing errors.

House Majority Leader Valerie Longhurst, who is sponsoring the bill, noted that the measure will benefit many small businesses throughout the state by reducing and simplifying filings they must submit, protecting them from being penalized due to errors during filing.

“Most other states have abandoned this method of calculating corporate income tax, which leaves Delaware at a competitive disadvantage. By taking these steps, we are putting Delaware on a level playing field with our surrounding states,” said Rep. Longhurst, D-Bear. “I’m pleased that leaders on both sides of the aisle have quickly come together to make Delaware an even better place for businesses. I hope we can continue to work together on other efforts to address our fiscal situation.”

In recent years, more and more states have adopted this method of apportionment, with Pennsylvania, New Jersey, and New York among those who have made similar adjustments.

Business community leaders also expressed their support for the Delaware Competes Act. “The Delaware State Chamber of Commerce is pleased that the Administration and General Assembly are taking this step to help make Delaware more competitive regionally and nationally,” said A. Richard Heffron, President of the Delaware State Chamber of Commerce.  “Policies like these are what we need to attract and retain companies in Delaware, which is vital to our long term economic growth.”

Modernizing Delaware’s business taxes, as proposed in the Delaware Competes Act, was identified by the Governor’s Revenue Review Task Force as one way to provide more predictability and stability for Delaware’s Corporate Income Tax. “I am happy to see that the General Assembly is taking steps to enact this change,” said Josh Martin, Chairman of the Task Force. “This recommendation had unanimous support from the group, and its adoption would have a positive impact on the state going forward.”

The Delaware Competes Act has been assigned to the House Revenue & Finance Committee.