With Delaware ranked dead last in the nation in a 2007 state-by-state comparison of entrepreneurial activity, Delaware is looking for creative ways to become a seedbed for entrepreneurship.
Along with the state's multimillion-dollar Strategic Fund, which gives grants and loans to businesses, Delaware has created a new, more modest program it hopes will coax existing Delaware businesses to recruit new ones to the First State.
The Business Finder’s Fee tax credit, or BFF credit, developed by the Delaware Department of Economic Development (DEDO), offers Delaware businesses an incentive to convince out-of-state businesses they deal with to expand into or relocate to the First State. It also offers those out-of-state businesses an incentive.
The BFF credit, which goes into effect this October, gives a Delaware-based business and any business it lures to the state each a $500 tax credit for each new full-time Delaware employee the new business creates for three years. The new business needs to create a minimum of only three jobs to qualify.
DEDO Secretary Alan Levin says no other state has such a program. Delaware's ranking of 50th in entrepreneurial activity, in the 2007 State New Economy Index by the Information Technology and Innovation Foundation/Kaufmann Foundation, highlighted a need for fresh thinking about business creation.
“The best part about this is that it will increase Delaware’s tax base without increasing taxes, and that is a huge plus for this state,” said Levin.
When he signed the bill creating the BFF credit into law this month, Governor Jack Markell (D) made his expectations clear.
“With this signature, what I’m really doing is issuing a call to action to Delaware businesses large and small. Everyone of them now has something to gain, very directly, by going out and getting folks to come here and create jobs,” he said.
The BFF tax credit received support across party lines as it made it way through the General Assembly.
“Seaford is in dire need of any tool we can have to encourage development in our area,” added House Minority Whip Dan Short (R-Seaford).
“It’s a great way to develop hot leads," said Senator Brian Bushweller (D-Central Kent). "Think of this as a sales opportunity. This is not a cold call any more. This is a hot lead. We’re now talking to somebody a local businessman knows might very well prosper if they move here.”
The bill’s sponsor, State Representative Brad Bennett (D-Dover), says the bill is about "bringing companies and bringing jobs to Delaware."
"As the owner of a small business that’s been around since 1960, I’ve seen the ups and downs," said Rep. Bennett, president of Bennett Security Service. "This legislation will go a long way to help bring some jobs back to Kent County.”
Secretary Levin believes giving businesses in other states even a small reason to think about moving is worth the effort.
“A lot of companies are not happy where they are. They just stay there out of habit. If there’s an incentive here to make them come or assist them in their coming, we’re happy to do that.”
Sen. Bushweller maintains that having Delaware businesses give that little push makes more sense than having state officials lobby those businesses.
“If there’s a Maryland business that might be contacted by DEDO, they’ll be polite about it, but they’re also saying [that DEDO is] just trying to sell me on Delaware,” Bushweller said. “If the contact comes from a local successful business that’s already partnering with this business in Maryland, and who already knows the business in Maryland well because they are partnering, now the business in Maryland can say, ‘Well, that’s kind of interesting. Maybe I should look at that.’ "
And cashing in on the BFF credit does not exclude businesses from taking advantage of Delaware's Strategic Fund, which makes grants and loans to new businesses.
“Some may criticize it and say it’s double dipping, but [BFF] is a tax credit," said Levin. "That’s not a cash award; that’s not a loan—which is what the Strategic Fund is.
“Five-hundred dollars per employee is not close to what it will support on the Delaware personal income tax, but it is an incentive.”