Delaware corporate income tax revision bill passes first hurdle

DOVER — A House committee released a bill altering the state’s corporate income tax in a bid to make Delaware more “business-friendly.”

Supporters believe the bill will result in companies investing more in Delaware and will prevent ones currently located in the state from leaving, although opponents deride it as a corporate handout.

Introduced Friday with the backing of the governor and all four caucuses, the bill would change the way the corporate income tax is calculated.

State Finance Secretary Thomas Cook

State Finance Secretary Thomas Cook

Currently, it is based in part on a company’s total sales, payroll and property holdings in Delaware relative to its nationwide business operations. Under the bill, the tax would be determined solely by the percentage of sales in Delaware.

The change would be phased in over four years, moving from 50 percent in 2017 to 100 percent in 2020, with companies headquartered in the First State receiving the full benefit next year.

State Finance Secretary Thomas Cook said 37 other states have adopted this method, leaving Delaware as the only East Coast state to calculate corporate income tax based on three portions.

“So it’s fair for me to summarize that doing nothing could cost us more than this fiscal note,” Rep. Mike Ramone, R-Pike Creek Valley, said.

“Doing this may at least offset the fiscal note by growth of certain companies, and I think the intangible that we really don’t know is how many people who were thinking about going somewhere else or already went somewhere else, who went to this method of the one tier instead of the three, would now come back to Delaware because of all our caveats of attraction in that business world.”

Though the Delaware Competes Act, as it’s known, has wide support in the General Assembly, a few lawmakers caution any potential gains would pale in comparison to the expected losses.

There’s a projected $49 million hit to the state’s coffers over the next three years as a result of the bill, something opponents have not failed to notice.

Rep. Sean Matthews, D-Talleyville, was the only member of the House Revenue & Finance Committee to vote against it.

Afterward, he called the bill part of a “race to the bottom” and cited the loss in revenue to government as his rationale for opposing.

“We have to do it because other states do it,” he said. “I don’t view it as economic development. I view it as cutting corporate taxes.”

The legislation is backed by business organizations such as the Delaware Chamber of Commerce, the Delaware Business Roundtable and the Delaware Contractors Association, all of which testified in favor Wednesday.

“I can tell you right now, if this bill is not enacted upon by this General Assembly and I were sitting on the Chemours board, I would certainly take Delaware off the table,” Mr. Cook said.

The legislation could also entice chemical giants Dow and DuPont, which announced a merger last month, to headquarter their new agricultural spinoff in the state, Mr. Cook said.

Rep. John Kowalko, D-Newark, is not on the House Revenue & Finance Committee but attended the hearing so he could detail his objection to the “climate of corporate extortion permeating the United States.”

“If we have a premise, a hypothetical that if we do nothing that there’s an unproven, unable to be proven consequence of doing nothing in our Finance Department, as opposed to the document that we lost 8.2 million, 17.6 and 22.9. I appreciate Secretary Cook, I appreciate your concern for the future, but I think it’s unfair of you to represent the Finance Department as saying something that’s hypothetical being that we may lose eventually if we do nothing, when we are proven that we will lose money if we are doing something,” he said.

The bill also contains provisions designed to help small businesses, such as fewer required gross receipts reports and safeguards for companies that make incorrect estimates.

Rep. Matthews said he supports some of the language focused on small business but could not support the overall bill.

The act will be heard in the House Appropriations Committee today, which handles legislation that results in revenue losses.

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