Changes to the federal tax code Congress passed last month take effect New Year’s Day. The state is still trying to estimate the impact to its revenue.
Delaware may collect less in taxes because the new tax law reduces individual and corporate tax rates.
But Finance Secretary Rick Geisenberger said the 20 percent tax cut for pass through entities could incentivize more people to form corporations and LLCs in Delaware. Profits from pass through businesses are taxed through the individual income tax code rather than through the corporate code.
Geisenberger said the state could collect more in franchise and LLC fees and LLC taxes if people form more corporations.
“Delaware has a large percentage of its economy wrapped up in the financial center, so in that way those things could be really good for potentially Delaware revenues and Delaware’s economy," he said. "There may be other parts of the economy that that this bill is not good for. We’ll really have to see how things play out.”
Geisenberger says there’s still uncertainty about the overall impact to the state. It will depend on factors like taxpayer behavior and how the law is interpreted by government agencies.
Other parts of the new tax law include a doubling of the standard deduction, incentives for business development and an increased child tax credit.
It also eliminated the penalty for people who don’t buy health insurance.
Delaware lawmakers raised some taxes last year - including corporate rates - to cover a $300 million deficit.
The latest forecast from the Delaware Economic & Financial Advisory Council, or DEFAC, gives the state about about $88 million more for the 2019 fiscal budget than anticipated in June.