The bill, sponsored by House Majority Leader Kerri Harris and State Senator Bryan Townsend, aims to address the predicted $400 million dollar state revenue deficit to be created by the One Big Beautiful Bill Act’s changes to corporate tax code.
The federal changes allowed immediate tax breaks for research and development expenditures and the instantaneous expensing of business and qualified production property.
State Democrats say that those breaks are still allowed, but the timing will be spread out over a few years instead of all at once, which they say is how it previously worked.
New federal legislation would allow businesses to use new tax breaks to claw back tax dollars they've already paid, going as far back as 2022. HB255 disallows that but will allow those breaks to be filed moving forward.
It also It also decouples federal retroactivity for full bonus appreciation expensing for tax year 2025 and future years, instead allowing businesses to immediately deduct up to $2.5 million in purchases of assets with a lifespan of less than 20 years.
Republican opponents argue the emergency nature of the extraordinary session, and the urgency to pass the bill, are unfounded and send the wrong message.
“This is a rushed process. We are reacting to a perceived crisis that I don’t believe is there, because we do have, within the budget, the ability to manage the shortfall,” said State Senator Eric Buckson (R-Dover).
“We don’t want to send a signal out there that Delaware might value our state budget priorities over investments they’re trying to make here, in our state.” said State Senator Brian Pettyjohn (R-Georgetown).
Senate Republicans are concerned that the bill will create a perception that Delaware isn't keeping businesses best interest in mind, an opinion they say they say they've heard from both in-state business owner constituents and out-of-state investors.
Buckner says that perception, whether correct or not, doesn't matter in this instance.
"Perception is reality. In Delaware, we relied on predictability and reliability. That's why our corporations want to come here, because there's a certain level of predictability and reliability. And, we're not doing that now" he told DPM.
He also criticized the number of extraordinary sessions that the legislature has held in recent times, noting that it sends the general public a message that the state government is panicking.
The bill's Democratic supporters counter that the bill doesn't hurt businesses at all, and that the budget shortfall would have broader consequences.
“Part of what motivates all of this is not a fiscal emergency, with numbers cratering from DEFAC, it’s a discernable, quantifiable, identified, automatic change in Delaware revenues from a federal change, that would mean having to change our budget.” Senate Majority Leader and bill co-sponsor Bryan Townsend (D-Newark) said. "This is about whether or not we should be part of a federal decision that says that large businesses should get accelerated tax benefits, or if we should stay the course."
Delaware Secretary of Finance Michael Smith also says that the state does not believe the tax rule shift will discourage companies from choosing to do business in Delaware.
"There's no disincentive to come to Delaware because of this decoupling. Large corporations want to sell their [product] everywhere, and we're a very small portion of that population that consumes whatever their selling. Whether they're manufacturing and wholesaling them here or not, their corporate income tax is only subject that portion of sales... in Delaware" he said.
House lawmakers passed the bill last week. It cleared the Senate in a 14-6 vote Wednesday. Gov Matt Meyer signed it into law shortly thereafter.
"Without doing this, we would have had to make some very serious decisions in terms of cutting services" he said.
Meyer also voiced his displeasure with current decision making at the national level, commenting "we're not out of the woods yet."
The bill will sunset by the year 2030. Secretary Smith says that means the First State will be back conformity with federal tax rules in tax year 2031, unless the state legislature makes changes before then.
