DOVER, Del. (AP) — Lawmakers are eyeing legislation that revises Delaware's corporate income tax system in an effort to eliminate disincentives for multistate firms to hire workers and build or expand facilities in the state.
The legislation cleared the revenue and finance committee on Wednesday and was scheduled for an appropriations committee hearing and possible floor vote Thursday.
The bill revises a formula that equally factors the Delaware-based percentages of a company's total payroll, property and sales in calculating the state income tax due. It proposes gradually reducing the weight given the property and payroll factors until, by 2020, a company's Delaware corporate income tax would be based solely on Delaware's proportion of total sales.
The bill also would increase the gross receipts and withholding thresholds for tax filings and change the timing of tax liability payments for small businesses in an effort to minimize the impact on cash flow.
The changes, widely supported by the business community, would cost the state an estimated $8.2 million in fiscal 2017, $17.6 million the following year, and an estimated $22.9 million in fiscal 2019. But lawmakers and state officials believe the changes are needed to keep Delaware competitive with other states in attracting large corporations and to help small businesses thrive.
Chief sponsor Rep. Valerie Longhurst, D-Bear, noted that most states give extra or sole weight to sales in factoring corporate income tax, putting Delaware at a disadvantage in trying to attract jobs and capital investment by corporations.
Consideration of the legislation comes as state official wonder whether Chemours, the struggling performance chemicals business spun off by the DuPont Co., will remain based in downtown Wilmington or move its headquarters elsewhere.
Officials also are pondering the potential impact of the proposed merger of DuPont and Dow Chemical, which would result in the spinoffs of three independent, publicly traded companies. Dow and DuPont officials have said their specialty products business will be based in Wilmington, while the material science business will be based in Michigan. But a headquarters for the agriculture business has yet to be announced.
"I think this at least puts us in the game for that industry to come here and stay here in Delaware," state finance secretary Tom Cook told lawmakers.
Cook also noted that if he were a Chemours board member, he would take Delaware "off the table" if the legislation does not pass.
Rep. John Kowalko, a Newark Democrat, took issue with Cook's remarks, saying any potential benefit from the proposed change is purely hypothetical, while the resulting loss of general fund revenue is real.
"There's a climate of corporate extortion permeating the United States, pitting state against state," Kowalko added.
The proposed changes are among recommendation made by a state panel formed to explore ways to make Delaware's revenue portfolio less unpredictable and more reflective of economic conditions.