§ 1903 — Computation of taxable income [For application of this section see 85 Del. Laws, c. 231, § 3]

Delaware § 1903

• Jurisdiction: Delaware
• Title: 30
• Part: Income, Inheritance and Estate Taxes
• Ch. 19: CORPORATION INCOME TAX

Text

(a) The “entire net income” of a corporation for any income year means the amount of its federal taxable income for such year as computed for purposes of the federal income tax as modified under subsection (d) of this section and increased by:

(1) Any interest income (including discount) on obligations issued by states of the United States or political subdivisions thereof other than this State and its subdivisions, and

(2) The amount of any deduction allowed for purposes of the federal income tax pursuant to § 164 of the Internal Revenue Code (26 U.S.C. § 164) for taxes paid on, or according to or measured by, in whole or in part, such corporation’s net income or profits, to any state (including this State), territory, county or political subdivision thereof, or any tax paid in lieu of such income tax, and its federal taxable income shall be further adjusted by eliminating:

a. Dividends received on shares of stock or voting trust certificates of foreign corporations or interest income or royalty income, on which a foreign tax is paid, deemed paid or accrued under the applicable provisions of the United States Internal Revenue Code [26 U.S.C. § 1 et seq.];

b. Interest income (including discount) from securities issued by the United States or agencies or instrumentalities thereof and interest income (including discount) arising from obligations representing advances, loans or contractual transactions between corporations which are eligible to file a consolidated return for federal income tax purposes and which are subject to taxation under this chapter, if the paying corporation eliminates such interest (including discount) in determining its entire net income; provided, however, that the expenses allocable to interest income from securities issued by the United States or agencies or instrumentalities thereof shall not be allowed as a deduction;

c. Gains and losses from the sale or other disposition of securities issued by the United States or agencies or instrumentalities thereof or by this State or political subdivisions thereof. Expenses incurred in connection with such gains and losses shall not be considered in computing the entire net income of the corporation;

d. Any deduction allowed for depletion of oil and gas wells under § 611 of the federal Internal Revenue Code [26 U.S.C. § 611] to the extent such deduction is determined by reference to § 613 of the federal Internal Revenue Code [26 U.S.C. § 613] (relating to percentage depletion);

e. An amount equal to the portion of the wages paid or incurred for the taxable year which is disallowed as a deduction for federal purposes under § 280C, Internal Revenue Code [26 U.S.C. § 280C], relating to the portion of wages for which the new jobs tax credit is claimed;

f. The cost, not to exceed $5,000, of a renovation project to remove physical design features in a building that restrict the full use of the building by physically handicapped persons. The modification shall be allowed for the taxable year in which the renovation project is completed and is in addition to any depreciation or amortization of the cost of the renovation project. “Building” means a building or structure or that part of a building or structure and its related sidewalks, curbing, driveways and entrances that are located in Delaware and open to the general public;

g. The “eligible net income” of an Edge Act corporation organized pursuant to § 25(a) of the Federal Reserve Act, 12 U.S.C. § 611 et seq. The eligible net income of an Edge Act corporation shall be the net income from any international banking facility of such corporation each computed as described in § 1101(a)(1)d. and e. of Title 5;

h. Any deduction, to the extent such deduction exceeds $30,000, for a net operating loss carryback as provided for in Internal Revenue Code § 172 [26 U.S.C. § 172] or successor provisions; provided, however, that the taxpayer may increase deductions in any year, consistent with the operation of § 172, to carry forward losses which were carried back in calculating federal taxable income but which were prevented from being carried back under this paragraph (a)(2)h.

i. Any deduction for a net operating loss carryforward calculated in accordance with the provisions of the Internal Revenue Code, provided however that the deduction may not exceed the amount claimed on the federal return filed for the taxable year in which the taxpayer was included as a party.

j. An amount equal to the ordinary and necessary business expenses paid or incurred for the taxable year by a marijuana business operating pursuant to Chapter 13 of Title 4 or Chapter 49A of Title 16, which is disallowed as a deduction for federal purposes pursuant to § 280E of the Internal Revenue Code [26 U.S.C. § 280E].

(b) “Taxable income” subject to taxation under this chapter means the portion of the entire net income of a corporation which is allocated and apportioned to this State in accordance with the following provisions:

(1) Rents and royalties (less applicable or related expenses) from tangible property shall be allocated to the state in which the property is physically located;

(2) Patent and copyright royalties (less applicable or related expenses) shall be allocated proportionately to the states in which the product or process protected by the patent is manufactured or used or in which the publication protected by the copyright is produced or printed;

(3) Gains and losses from the sale or other disposition of real property shall be allocated to the state in which the property, and expenses incurred in connection with dispositions resulting in such gains and losses, is physically located;

(4) Gains and losses from the sale or other disposition of tangible property for which an allowance for depreciation is permitted for federal income tax purposes, and expenses incurred in connection with dispositions resulting in such gains and losses, shall be allocated to the state where the property is physically located or is normally used in the taxpayer’s business;

(5) Interest (including discount) to the extent included in determining entire net income under subsection (a) of this section, less related or applicable expenses, shall be allocated to the state where the transaction took place which resulted in the creation of the obligation with respect to which the interest was earned;

(6) a. If the entire business of the corporation is transacted or conducted within this State, the remainder of its entire net income shall be allocated to this State. If the business of the corporation is transacted or conducted in part without this State, such remainder, whether income or loss, shall be apportioned to this State:

1. For taxable periods beginning before January 1, 2017, by multiplying such remainder by the arithmetical average of the 3 factors set forth in paragraphs (b)(6)b.1.,2., and 3. of this section;

2. For taxable periods beginning after December 31, 2016, and before January 1, 2018, by multiplying such remainder by a fraction, the numerator of which is the sum of the property factor set forth in paragraph (b)(6)b.1. of this section plus the payroll factor set forth in paragraph (b)(6)b.2. of this section plus double the sales factor set forth in paragraph (b)(6)b.3. of this section, and the denominator of which is 4;

3. For taxable periods beginning after December 31, 2017, and before January 1, 2019, by multiplying such remainder by a fraction, the numerator of which is the sum of the property factor set forth in paragraph (b)(6)b.1. of this section plus the payroll factor set forth in paragraph (b)(6)b.2. of this section plus triple the sales factor set forth in paragraph (b)(6)b.3. of this section, and the denominator of which is 5;

4. For taxable periods beginning after December 31, 2018, and before January 1, 2020, by multiplying such remainder by a fraction, the numerator of which is the sum of the property factor set forth in paragraph (b)(6)b.1. of this section plus the payroll factor set forth in paragraph (b)(6)b.2. of this section plus 6 times the sales factor set forth in paragraph (b)(6)b.3. of this section, and the denominator of which is 8; and

5. For taxable periods beginning after December 31, 2019, by multiplying such remainder by the sales factor set forth in paragraph (b)(6)b.3. of this section.

b. The factors shall be calculated as follows:

1. The property factor shall equal the average of the value, at the beginning and end of the income year, of all the real and tangible personal property, owned or rented, in this State by the taxpayer, expressed as a percentage of the average of the value at the beginning and end of the income year of all such property of the taxpayer both within and without this State; provided, that any property, the income from which is separately allocated under paragraph (b)(1) of this section or which is not used in the taxpayer’s business, shall be disregarded, and provided further, that in the case of a non-U.S. corporation, property without this State shall include only property located without this State, but also within the United States. For the purposes of this paragraph (b)(5)b.1., property owned by the taxpayer shall be valued at its original cost to the taxpayer, and property rented by the taxpayer shall be valued at 8 times the annual rental;

2. The payroll factor shall equal the wages, salaries and other compensation paid by the taxpayer to employees within this State, except general executive officers, during the income year expressed as a percentage of all such wages, salaries and other compensation paid within and without this State during the income year to all employees of the taxpayer, except general executive officers; provided, that in the case of a non-U.S. corporation, wages, salaries and other compensation paid without this State during the income year shall include only wages, salaries and other compensation paid during the income year to employees of the taxpayer, except general executive officers, that are deductible under § 882 of the Internal Revenue Code of 1986 (26 U.S.C. § 882), as amended, in determining federal taxable income which is effectively connected with the conduct of a trade or business within the United States;

3. The sales factor shall equal the gross receipts from sales of tangible personal property physically delivered within this State to the purchaser or the purchaser’s agent (but not including delivery to the United States mail or to a common or contract carrier for shipment to a place outside this State) and gross income from other sources within this State for the income year expressed as a percentage of all such gross receipts from sales of tangible personal property and gross income from other sources both within and without the State for the income year; provided, that any receipts or items of income that are excluded in determining the taxpayer’s entire net income or are directly allocated under paragraphs (b)(1) to (5) of this section shall be disregarded.

c. This paragraph (b)(6) shall not apply in the case of:

1. An asset management corporation;

2. A telecommunications corporation; or

3. A worldwide headquarters corporation.

(7) The remainder of the entire net income of an asset management corporation shall be apportioned to this State on the basis of the ratio of gross receipts from asset management services from sources within this State for the income year expressed as a percentage of all such gross receipts from asset management services both within and without the State for the income year; provided, that any receipts or items of income that are excluded in determining the taxpayer’s entire net income or are directly allocated under paragraphs (b)(1) to (5) of this section shall be disregarded. The source of gross receipts from asset management services shall be determined as follows:

a. In the case of asset management services provided directly or indirectly to an individual, gross receipts with respect to such services shall be sourced to the State of the individual’s domicile.

b. In the case of asset management services provided directly or indirectly to an institutional investor holding investments for the benefit of others, such as a pension plan, retirement account or pool of intangible investments, including a fund (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.)), or to an institutional investor organized as a pass-through entity (as defined in § 1601(6)a. of this title), gross receipts with respect to such services shall be sourced according to the following rules in the following order:

1. If information regarding domicile of beneficiaries, owners or members is available to the asset management corporation providing asset management services to a pension plan, retirement account or pool of intangible investments, including a fund (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.)), or to an institutional investor organized as a pass-through entity (as defined in § 1601(6)a. of this title) through the exercise of reasonable diligence in ascertaining such information, gross receipts with respect to such services shall be sourced to the domicile of such beneficiaries, owners or members;

2. If information regarding domicile of beneficiaries, owners or members is not available to the asset management corporation providing asset management services to a pension plan, retirement account or pool of intangible investments, including a fund (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.)), or to an institutional investor organized as a pass-through entity (as defined in § 1601(6)a. of this title) through the exercise of reasonable diligence in ascertaining such information, a reasonable alternative method based on information readily available to the asset management corporation may be used to determine the source of gross receipts with respect to such services, and such reasonable alternative method shall be disclosed and explained in the return in which the method is used. The burden of demonstrating the reasonableness of the method rests on the taxpayer. Based on facts and circumstances in specific cases, reasonable alternative methods used to determine the source of gross receipts from asset management services may take into account the latest population census data available from the United States Census Bureau, the domicile of the sponsor of a pension plan or retirement account or an account or pool of intangible investments (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.)) or the domicile of an institutional investor organized as a pass-through entity (as defined in § 1601(6)a. of this title); or,

3. If

A. The domicile of beneficiaries, owners or members is not ascertained under paragraph (b)(7)b.1. of this section; or,

B. No reasonable alternative sourcing method exists under paragraph (b)(7)b.2. of this section, gross receipts with respect to such services shall be sourced to the domicile of the institutional investor or the domicile of the sponsor of a pension plan or retirement account or an account or pool of intangible investments, including a fund (other than an investment company under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.)), to which asset management services are provided.

c. In the case of asset management services provided directly or indirectly to an investment company under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), gross receipts with respect to such services shall be sourced to the domicile of the shareholders of such investment company in accordance with the following procedure: the portion of the gross receipts with respect to such services that are sourced to this State shall be determined by multiplying the total of such gross receipts by a fraction, the numerator of which is the average of the sum of the beginning of year and the end of year balance of shares owned by the investment company shareholders domiciled in this State for the investment company’s taxable year for federal income tax purposes and the denominator of which is the average of the sum of the beginning of year and the end of year balance of shares owned by all investment company shareholders. A separate computation shall be made with respect to gross receipts for asset management services provided directly or indirectly to each investment company.

d. In the case of asset management services provided directly or indirectly to a person other than those persons described in paragraph (b)(7)a. through c. of this section, to the domicile of such person.

(8) If the entire business of a telecommunications corporation or a worldwide headquarters corporation is transacted or conducted within this State, the remainder of its entire net income shall be allocated to this State. If the business of a telecommunications corporation or a worldwide headquarters corporation is transacted or conducted in part without this State, such remainder, whether income or loss, shall be apportioned to this State:

a. For taxable periods beginning before January 1, 2017, by multiplying such remainder by the arithmetical average of the 3 factors set forth in paragraphs (b)(6)b.1., 2., and 3.of this section; and

b. For taxable periods beginning after December 31, 2016, by electing, on an annual basis, either to:

1. Multiply such remainder by the sales factor set forth in paragraph (b)(6)b.3. of this section; or

2. Multiply such remainder by the arithmetical average of the 3 factors set forth in paragraphs (b)(6)b.1., 2., and 3. of this section.

(c) If, in the discretion of the Secretary of Finance, the application of the allocation or apportionment provisions of this section result in an unfair or inequitable proportion of the taxpayer’s entire net income being assigned to this State, then the Secretary of Finance or the Secretary’s delegate may permit or require the exclusion or alteration of the weight to be given to 1 or more of the factors in the formula specified above or the use of separate accounting or other method to produce a fair and equitable result.

(d) To determine entire net income for any income year under this chapter, an amount is added to or subtracted from the amount of federal taxable income for such year as computed for purposes of the federal income tax:

(1) For domestic research and experimental expenditures made after December 31, 2021, but on or before December 31, 2024, to continue the expensing of such expenditures under the United States Internal Revenue Code [26 U.S.C. § 1 et seq.] provisions in effect immediately before the enactment of § 70302 of P.L. 119-21, rather than under § 70302 of P.L. 119-21.

(2) For property acquired and placed in service after January 19, 2025, and before January 1, 2031, which would otherwise be eligible for expensing under § 70301 of P.L. 119-21, to continue the amortization and depreciation of such property under the United States Internal Revenue Code [26 U.S.C. § 1 et seq.] provisions in effect immediately before the enactment of § 70301 of P.L. 119-21, rather than under § 70301 of P.L. 119-21.

(3) For qualified production property, as defined in § 70307 of P.L. 119-21, placed in service before January 1, 2031, to continue the amortization and depreciation of such property under the United States Internal Revenue Code [26 U.S.C. § 1 et seq.] provisions in effect immediately before the enactment of § 70307 of P.L. 119-21, rather than under § 70307 of P.L. 119-21.

Legislative History

30 Del. C. 1953, § 1903; 51 Del. Laws, c. 298 ; 51 Del. Laws, c. 315, § 4 ; 57 Del. Laws, c. 136, §§ 2, 3 ; 57 Del. Laws, c. 188, §§ 19, 41 ; 57 Del. Laws, c. 533 ; 57 Del. Laws, c. 741, § 8B ; 58 Del. Laws, c. 320 ; 59 Del. Laws, c. 113, §§ 1, 2 ; 60 Del. Laws, c. 18, § 3 ; 61 Del. Laws, c. 76, § 2 ; 61 Del. Laws, c. 297, § 1 ; 62 Del. Laws, c. 56, § 3 ; 63 Del. Laws, c. 295, § 2 ; 64 Del. Laws, c. 43, § 8 ; 67 Del. Laws, c. 263, §§ 1, 2 ; 68 Del. Laws, c. 82, §§ 9, 10 ; 70 Del. Laws, c. 186, § 1 ; 71 Del. Laws, c. 19, § 80 ; 71 Del. Laws, c. 217, §§ 3-6 ; 76 Del. Laws, c. 234, §§ 5, 6 ; 80 Del. Laws, c. 195, §§ 8, 9 ; 83 Del. Laws, c. 107, § 5 ; 84 Del. Laws, c. 24, § 5 ; 85 Del. Laws, c. 231, § 1