Why Should Delaware Care?
Following tax cuts passed by the Trump administration this summer, Delaware could lose hundreds of millions of dollars from corporate income tax unless it separates its tax code from the federal one. House Democrats approved a bill to do so, over the objections of Republicans and business leaders.
The Delaware House of Representatives approved a bill Thursday that would negate corporate tax cuts approved by Congress this summer.
The move, which drew considerable criticism from business leaders and state Republicans, was meant to mitigate a hundreds of millions of dollars in reduced state revenues due provisions in the Trump administration’s One Big Beautiful Bill Act.
After passing the House following nearly two hours of Republican opposition, the bill – House Bill 255 – must now be considered by the State Senate.
The legislation “decouples,” or separates, portions of Delaware’s corporate income tax code from federal statutes. If lawmakers had not acted before Dec. 31, the state’s tax laws would have mimicked the now permanent federal corporate tax cuts under the OBBBA.
Those tax cuts, the state’s independent board of financial advisors projected, would result in more than $400 million less in corporate income tax revenue over the next three years. That represents about 6% of Delaware’s $6.8 billion budget.
And while HB 255 centers around corporate income tax, Republicans’ pushback focused largely on Delaware’s corporate franchise, with multiple representatives worried that decoupling would further disincentivize large companies from choosing to domicile in the state.
In recent days, the state Republican House Caucus tied the recently announced reincorporation of cryptocurrency company Coinbase to the decoupling push. But Coinbase has no operations in Delaware and therefore is unaffected by the tax cuts being negated.
Delaware’s Secretary of State Charuni Patibanda-Sanchez cautioned lawmakers from conflating corporate income tax with the state’s corporate franchise.
The decision to incorporate in Delaware, she said, is largely a legal one. Companies choose to come to the First State because of the Court of Chancery and favorable legal provisions, not because of state tax codes. There also has been a 13.8% increase in year-over-year incorporations in the state, she said.
Rep. Bryan Shupe (R-Milford South), a vocal opponent of the decoupling bill, said he has heard a different story from business leaders.
“What companies are telling me, and what they’re putting on the record, is that before they just looked at the Chancery Court, but then once the Chancery Court was challenged for not being business-friendly by the General Assembly, corporations and businesses throughout the United States have started looking at all of the decisions – the business decisions – that the General Assembly has been making, including this decoupling,” Shupe told Spotlight Delaware.
Leaders from the Delaware State Chamber of Commerce, Delaware Business Roundtable and Delaware BioScience Association opposed HB 255, arguing in a letter to legislative leaders that the steepest impacts of the change would be borne by “small and startup science and technology businesses whose existence and immediate growth potential depends upon receiving the immediate benefit of R&D expensing.”
They argued that unspent funding from open positions, unfulfilled contracts and delayed construction projects could be reverted to the state budget to help fill any revenue gaps for the impending fiscal year.
“The risks House Bill 255 sets in motion may lessen, not strengthen, our role in attracting the very small businesses every public official proudly professes to support,” they wrote.
What would the legislation do?
Under the OBBBA, companies can now immediately write off the full cost of research and development and certain property investments in a single tax year, as opposed to spreading those deductions over multiple years.
Because of those changes, the state was projected to lose $222.8 million in fiscal year 2026, $107.4 million in fiscal year 2027 and $79.9 million in fiscal year 2028, according to projections from the Delaware Economic and Financial Advisory Council (DEFAC).
HB 255 would separate the state’s tax code from these provisions. It would not eliminate them entirely, but instead change state law to require that they spread those corporate tax deductions over multiple years.
The bill also includes a carveout aimed at mitigating impacts on small businesses, allowing companies to immediately deduct up to $2.5 million in qualifying equipment and property purchases each year.
Under an amendment added to the bill, the state’s decoupling would be in effect until tax year 2030. The state’s tax code would then revert back to mimicking federal law, unless lawmakers took further action.
As part of the bill, DEFAC would be required to produce a report in December 2027 on the bill’s revenue impact, federal law updates and recommendations for future tax policy.
Other legislative actions
The House also amended its rules Thursday morning to allow for virtual participation during special legislative sessions, a move that Republican critics said was only expedited to pass the decoupling bill later in the day.
The virtual participation rule change passed 22-15, falling largely along party lines. Reps. Sherae’a Moore (D-Middletown) and Madinah Wilson-Anton (D-Bear), who have criticized party leadership in the past year, defected from Democrats to vote against the proposal. Rep. Josue Ortega (D-Wilmington) abstained from voting.
Minority Leader Tim Dukes (R-Laurel) along with Reps. Sean Lynn (D-Dover) and Eric Morrison (D-Glasgow) were not present Thursday morning. Morrison subsequently joined the session virtually, and Lynn joined the session in person.
To approve HB 255, supporters needed to exceed 25 votes to make a three-fifths majority to enact a tax increase. Democrats hold 27 seats in the 41-seat chamber, meaning they needed virtually all in attendance to overcome Republican opposition. Concerns over the potential absence of Morrison and Lynn likely led to the push to ensure they could vote virtually, if needed.
Republicans and Democratic defectors decried the change, with Rep. Rich Collins (R-Millsboro) saying House leadership rushed a vote on virtual participation to help shore up Democrats ability to pass the tax decoupling legislation.
“We’re only doing this because we need to pass a bill with a three-fifths majority required,” Collins said. “And you know you can’t pass it without doing this, and some people can’t be here, so you got to get their votes. Well, that’s corruption, isn’t it?”
House Speaker Melissa Minor-Brown denied that accusation, saying Democrats have tried to enact this rule change for years but faced opposition from Republicans each year.
After debating virtual participation, lawmakers separately voted to extend the New Castle County property tax bill deadline until Dec. 31. The extension comes days after the Delaware Supreme Court ruled in favor of the county and its six school districts’ ability to tax commercial and residential property at different rates.
That Supreme Court ruling coupled with the House’s vote to extend the due date for New Castle tax bills is the latest step in the state’s ongoing property reassessment saga. With tax bills in the state’s northernmost county set to go out by Nov. 20, the contentious reassessment, and the months-long debate it spurred, is beginning to wind down.
Editor’s Note: This story has been updated to reflect that Democrats hold 27 seats in the Delaware House of Representatives. A previous version said they held 26 seats.