• Tax Advantages in Delaware
• Taxes Applying to Business
  • Corporate Income Tax
  • Bank Franchise Tax
  • Corporation Franchise Tax
  • License Fees and Gross Receipt Taxes
  • Miscellaneous Taxes and Fees
  • Real Property Taxes
  • Withholding of Employee’s Income Taxes
  • Unemployment Compensation
  • Workers’ Compensation
• Tax Incentives
  • Bank Franchise Tax Credits
  • Export Trading Company Exemption
  • Research and Development Tax Credits
  • Targeted Industry Tax Incentives
    • Corporate Income Tax Credits
    • Gross Receipts Tax Reductions
  • Targeted Area Tax Credits
    • Corporate Income Tax Credits
    • Gross Receipts Tax Reduction
    • Commercial, Retail Business Tax Incentives
  • Retention and Expansion Tax Credits
  • Green Industries Tax Credits
    • Waste Reductions
    • Industry Credits
  • Public Utility Tax Rebates for Industrial Users
  • Property Tax Incentives
• Personal Taxes Have Been Lowered
• Tax Comparisons by Income Level

TAX ADVANTAGES IN DELAWARE
The State of Delaware has adopted a clear, bipartisan policy to attract new business and encourage the expansion of existing operations. Key tax features, which now make Delaware more competitive, include: 

• A Constitutional requirement that any increase in existing State taxes, or new State taxes, is adopted by a super-majority (3/5) vote in the State Legislature.
• A Constitutional limit on State appropriations that work to relieve pressure on the tax structure and to build surpluses for potential tax reductions.
• No State or local general sales tax.
• A regressive bank franchise tax structure ranging from 8.7% of bank taxable income up to $20 million to 2.7% for all bank taxable income over $30 million. Effective January 1, 1997, a new rate of 1.7% of income in excess of $650 million will be added. Taxable income is 56% of net operating income after adjustments.
• An improved structure for unemployment insurance taxation that includes accelerated experience ratings for new employers.
• Tax credits on bank franchise, corporate income and reduction of gross receipts taxes for new and expanded businesses.
• Additional tax credits on corporate income and reduction of gross receipt taxes for new and expanding businesses locating in 30 targeted census tracts.
• Property tax relief for new construction and improvements of existing property.
• Real property taxes which are among the lowest in the country.
• No personal property or inventory taxes.
• The exemption of certain investment and holding companies from corporate income taxation.
• No fixtures tax.
• The adherence of the State tax structure to the federal definition of corporate net income so that companies may take full advantage of any federal tax law change, such as more rapid depreciation of newly purchased assets.
• Two approved foreign trade zones will allow the deferment of import taxes.
• Public Utility Tax rebates of 50% on increased consumption for qualifying industries, and reduced rate for manufacturers and agricultural processors.

TAXES APPLYING TO BUSINESS
In 1996 and 1998, CFO magazine rated Delaware as having the most equitable business tax climate. Businesses should note that Delaware has no tax on inventories and no tax on process machinery or equipment. Businesses and individuals alike will be pleased to find no sales tax, no personal property tax, no unitary tax, no machinery or equipment tax, and no State-level real property tax in Delaware.

Corporate Income Tax
The tax rate is 8.7% on net income. Taxes are not paid on interest from United States or State of Delaware obligations or subdivisions of either, nor on gains from the sale of United States or Delaware securities. Taxes are not paid on dividends of foreign corporations that qualify for, and claim, foreign tax credit on federal returns. Investment and holding companies maintaining and managing intangible investments, and collecting and distributing income from such investments or from tangible property outside Delaware, are exempt from State corporate income tax.

Income from interest, rents and royalties, patent and copyright royalties, and gains and losses from the disposition of real property is allocated directly to the states where the property is physically located or where the transaction took place, reduced by applicable expenses.

For those businesses which operate interstate, unallocated corporate income is apportioned on an equally weighted three-factor formula that averages the ratios of: (1) Delaware property to total property, (2) Delaware wages to total wages, and (3) Delaware gross receipts to total gross receipts. The apportionment formula is applied to a company’s entire taxable income, excluding allocated and exempt income.

Partnerships, sole proprietorships and shareholders of S Corporations are not subject to State corporate income taxes. Individuals carrying on business as partners, sole proprietors or who are shareholders of S Corporations are liable for personal income taxes imposed by the State only on their proportionate share of partnership, proprietorship or S Corporate income. The business may be subject to occupational and/or business license fees, as well as a gross receipt tax on sales/services within Delaware.

Bank Franchise Tax
The rate of tax on the net income of banks, trust companies, and national banks is 8.7% of taxable income not in excess of $20,000,000; 6.7% of taxable income in excess of $20,000,000 but not in excess of $25,000,000; 4.7% of taxable income in excess of $25,000,000 but not in excess of $30,000,000; 2.7% of taxable income in excess of $30,000,000 and, effective January 1, 1997, 1.7% of taxable income in excess of $650,000,000. Taxable income, for State tax purposes, equals net income reported on line eight of the FDIC Consolidated Report of Income. This income definition allows a 100% deduction for federal income taxes paid.

Corporation Franchise Tax
A domestic corporation may be established under the General Corporation Law of Delaware by filing the proper documents with the Secretary of State. The initial cost is based on a company's authorized capital stock, either (A) par value stock or (B) no par value stock, as follows:

Once a corporation has established Delaware as its legal home, the annual franchise tax includes:

Whether the franchise tax is computed according to (1) or (2) above, the minimum tax is $30 per year, and the maximum tax is $150,000 per year.

License Fees and Gross Receipt Taxes
Most occupations and businesses require the purchase of a license in order to operate legally in Delaware. Although license fees are minimal, several types of businesses, including those listed below, are required to pay a gross receipts tax in addition to the business license fees. Gross receipts tax information for types of businesses other than those listed may be obtained from the Delaware Economic Development Office.

• Manufacturers - $75 annual fee for each place of business, plus a tax of 0.180% (effective January 1, 2000) on the gross receipts for all goods manufactured in Delaware, regardless of the location of sale. In computing monthly gross receipts, the first $1 million in receipts are not subject to taxation.
• Wholesalers - $75 annual fee for each place of business, plus a tax of 0.384% on the gross receipts of all goods physically delivered within Delaware to the purchaser. In computing monthly gross receipts, the first $50,000, in receipts are not taxable. Manufacturers that also wholesale their products are subject to both the manufacturing and wholesale tax on gross receipts.
• Retailers - $75 annual fee, plus $25 for each separate branch or additional business location. Each retailer pays an additional tax of 0.720% on the aggregate receipts in excess of $50,000 per month. 
• Restaurants - $75 annual fee, plus $25 for each separate branch or location, plus an additional fee of 0.624% on aggregate receipts in excess of $50,000 per month.
• Food Processors - $75 annual fee for each place of business, plus a tax of 0.192% on gross receipts, in excess of $50,000 per month, from all goods sold within Delaware.
• Petroleum Products Wholesalers - $75 annual fee for each place of business, plus 0.9% (Hazardous Substances Cleanup Tax) and 0.384% on aggregate receipts in excess of $50,000 per month. Wholesalers are also subject to a surtax of 0.24% (.0024) on the sale of petroleum products.
• Petroleum Products Retailers - $75 annual fee for each place of business, plus additional fees of 0.9% (Hazardous Substances Cleanup Tax) and 0.72% on aggregate receipts in excess of $50,000 per month. (Retailers are exempt from 0.9% and 0.72% tax if the Hazardous Substances Cleanup Tax was paid to their supplier.)
• Occupational/Professional/General Services - $75 annual fee for first location and $25 for each additional location for most, plus an additional fee of 0.384% on aggregate receipts in excess of $50,000 per month.

Miscellaneous Taxes and Fees 

1. Motor fuels - $.23 per gallon. 
2. Realty Transfer Tax – Generally, 1.5% (many localities have a 1.5% add on) of the gross sale price (0.75% by buyer and 0.75% by seller). 
3. Lease/Use Tax - Lessee 1.92% of rental payments (monthly); Lessor 0.288% of rental payments received in excess of $150,000/quarter on personal property rentals, including automobiles, payable by the lessee.
4. Property Rental Tax - 0.384% on gross rentals of commercial property payable by the lessor.
5. Public Accommodations Tax - 8% excise on rents received for transient lodging in hotels, motels or tourist homes. Annual license fee: Hotel - $25 per room and $30 per suite; Motel - $25 per room; Tourist home - $15 per room.
6. Public Utilities Tax - 4.25% (2% for qualified manufacturers and food processors) excise on nonresidential consumption for: 
   1. Electricity used for any heat, light, or power. (Charges for electricity used in electrolytic, electroarcthermal, air separation and auto assembly manufacturing processes are exempt.) (See Public Utility Tax Incentives, Page II-15.)
   2. Natural gas piped from a distribution center to the user. (Charges for electricity used in electrolytic, electroarcthermal, and air separation manufacturing processes are exempt from taxation.) Also see Public Utility Tax Incentives, Page II-15.
   3. Infrastate telephone and telegraph communication services.
   4. Cable television communication services are taxed at 2.125% (includes residential service). 
7. Motor Vehicle Registration Fee
   1. Passenger cars, station wagons - $20 flat rate annually.
   2. Commercial trucks, trailers, semi-trailers, and recreation vehicles - $20 annually for gross weight of 5,000 pounds or less, plus $2.60 for each additional 500 pounds, and $20 per trailer up to three semi-trailers.
8. Motor Vehicle Document Fee (payable at time certificate of title is issued) - 2.75% of net purchase price - minimum fee, $8.

Real Property Taxes
County and municipal governments and school districts are financed in part through real property tax receipts. Real estate is subject to county property taxes, school district property taxes, vocational school district taxes, and if located within an incorporated area, municipal property taxes. There is no State-level tax on real or personal property. The total property tax burden depends on the tax rate, the property assessment, and the assessment ratio. These variables differ by geographic location in Delaware, with nominal tax rates ranging from $1.133/$100 of assessed value in rural Kent County to $1.703/$100 of assessed value within the City of Milford. A chart follows which shows the total real property tax burden on selected locations for three representative business properties. The Delaware Economic Development Office can provide property tax information for all geographic areas within the State.

Property Tax Per Square Foot 1999

Examples of Effective Real Property Tax Rates in Delaware

Low Real Estate Tax Burdens
Delaware homeowners’ property tax burden is considerably less than those of the surrounding area, as well as the national average. This is due in part to the more affordable housing available in Delaware. Runzheimer and Company, Incorporated estimated that the typical $40,000 income family’s housing costs, for housing with similar characteristics, would be less expensive in Delaware than in the neighboring states, as illustrated on Page II-8.

Real Estate Tax Burden Comparison ($40,000 Family Income)
 

Delaware uses the same property tax rate structure for both commercial and residential property. As a result, businesses can expect the same favorable property tax burden in Delaware as homeowners enjoy.

Withholding of Employee’s Income Taxes
Every employer is required to deduct and withhold income taxes from wages and other remuneration paid to employees. The State Division of Revenue is responsible for approving employers’ plans to insure that total withholdings will approximate each employee’s estimated tax liability. Withholdings are deducted from each payroll and remitted to the State Division of Revenue.

Unemployment Compensation
Unemployment insurance taxes are currently limited to wages of $8,500 paid to any individual employee during a calendar year. The State imposes unemployment compensation tax rates on new and established employers according to the following procedures:

• New employers - Nonconstruction industry employers are assigned a new employer rate equivalent to the average industry classification rate of all covered employers. The new, nonconstruction, employers rate for 1999 is 2.2%. New construction employers (SIC 15, 16, and 17) are assigned the higher of (1) the average of all employers in the new employers four-digit SIC classification or (2) the average construction industry rate. The minimum new construction industry employer rate for 1999 is 4.9%.
• Established employers are assigned earned rates, which are based on the employer’s and the State’s unemployment experience, and range from a minimum of 0.1% to a maximum of 8.0% of the taxable wage base. These rates are established after two consecutive years of operation.
• All employers are currently assessed a supplemental rate of 0.5%. The tax rate schedule for calendar year 1999 is as follows:

• The Blue Collar Jobs Act of 1984 instituted a State assessment on wages paid by employers that are subject to State Unemployment Insurance taxes. Although collected by the State's Division of Unemployment Insurance, the tax is not an unemployment compensation tax but will be used to fund new job training activities. Effective January 1, 1998, the assessment increased from 0.1% to 0.15%.

Workers’ Compensation
In Delaware, the Workers Compensation Law is administered by Office of Workers’ Compensation within the Department of Labor. This law provides prompt and reasonable income and medical benefits to work accident victims or income benefits to their dependents by mutual agreement or board decision. The law also serves to relieve employers of liability from common lawsuits involving negligence.

All employers must provide Workers’ Compensation coverage for their employees through an outside insurer or, with the approval of the Department of Labor, through self-insurance. The Delaware Compensation Rating Bureau establishes rates, with final approval required from the State Insurance Commissioner.

Examples of the rates for outside insurers that apply to a sample of risk classes are given below. A company with employees in more than one risk class must pay the assessed rate on each class of employee. Rates for other classes are available from the Delaware Economic Development Office.