Bloomberg, Delaware Approves Business Tax Decoupling to Avoid Revenue Loss:

Delaware enacted legislation Wednesday to decouple the state from some federal business tax incentives after a debate over whether the move would drive businesses away from the small but corporate-friendly state.

The Democratic-controlled Senate voted 14-6, along party lines, to approve H.B. 255, which Gov. Matt Meyer (D) signed. The passage wrapped up a special session the governor called to address a potential $400 million budget shortfall stemming from provisions of the federal GOP tax law Congress passed in July.

Delaware is one of nearly two dozen states that automatically conform to changes in the federal tax code unless they pass laws to go in their own direction.

“By decoupling in a targeted and temporary way, we’re able to preserve the state’s budget and continue providing meaningful, essential services for Delaware families during these difficult times,” Meyer said in a statement.

“We are doing all of this while ensuring that our businesses still receive every tax advantage they are owed, just on a timeline that better aligns with Delaware’s fiscal needs,” Meyer said.

The bill, introduced earlier this month, prohibits companies from immediately writing off the full cost of research and experimental costs and property investments in the first year they are incurred. The House approved the bill last week along party lines.

The state would require those write-offs to be spread over five years, which was the rule before July’s federal tax law. Property investments would also still be expensed over a period of years.

Republicans argued during the Delaware senate session that the decoupling bill would hinder the state’s ability to attract businesses and criticized the special session as unnecessary.

The special session is “more about political theater than solving a fundamental problem, a structural problem with the state tax code,” said Senate Minority Whip Brian Pettyjohn (R).

“We don’t want to send the signal out there that Delaware might value our state budget priorities over the investments that they’re trying to make here in our state,” Pettyjohn said.

Senate Majority Leader Bryan Townsend (D) disagreed the measure would harm competitiveness, pointing out Delaware tax code changes would likely be minuscule for big companies apportioning their income across all 50 states. Companies can still receive tax benefits, just spread over a longer period of time, he said.

“It’s about a small amount for each large company adding up to a significant amount in our budget at a time when we don’t want to have to say ‘no’ to the fire companies and others that are asking us for more support,” Townsend said.

Delaware is likely the final state this calendar year to proactively sever parts of its tax code from President Donald Trump’s signature tax law. Colorado, Rhode Island, Illinois, Michigan, Pennsylvania, and the District of Columbia all made similar moves toward doing so earlier this year.

To contact the reporter on this story: Daniel Moore in Washington at dmoore1@bloombergindustry.com