Delaware Corporate Tax: Everything You Need to Know
Delaware corporate tax is the amount of income tax paid by corporations in the state. Shelter of it is a way for a corporation to reduce its taxable income.3 min read
2. Delaware Doesn't Have State Taxes
3. The Separate Court System for the Tax Haven
4. Legislation for a Corporate Tax Hike
Delaware Corporate Tax
Delaware corporate tax is the amount of income tax paid by corporations in the state. A Delaware corporate tax shelter is a way for a corporation to reduce its taxable income so that the amount of taxes it pays is reduced. A tax shelter is any method that results in the recovery of an amount over $1 in tax in exchange for every $1 someone spends during a four-year period. The methodology isn't the same depending on local and international laws, but both individuals and corporations have the ability to create tax shelters.
For corporations in the U.S., states including Delaware are favorable shelters. As a result, a high number of companies choose to create tax shelters here. Slightly more tax benefits are allowed to corporations in the state, and because of this leniency, the number of corporate filings in the state has been skewed.
Delaware Doesn't Have State Taxes
Delaware has no state taxes. Whether or not a business's physical address is within state lines or not, there's no tax for it. Corporations with addresses in Delaware who have operations outside of the state pay no state corporate income tax on goods and services.
Interest and other investment income isn't subject to corporate tax. At the state level, a holding corporation will not be taxed on gains for fixed-income or equity investments. There's no personal property tax. If there's a real estate property tax at the county level, it's low in comparison to other states. Corporations are able to lower the property tax amount they pay because they can take ownership of their office spaces.
Delaware issues no tax on business transactions. It also doesn't have an inventory tax, unitary tax, or value-added taxes. Delaware has no inheritance tax. Capital shares aren't taxed and neither are stock transfers. Other ways to reduce a business's tax bill is by having no tax on some for-profit intangibles, such as:
Those intangibles may be part of a company's strategy to classify deductions in states outside of Delaware.
"The Delaware loophole" is a term used in tax circles. It's when a company can reduce taxes in another state — where the company's headquarters are located, for instance — by moving revenues or royalties to holding corporations in Delaware, where it will not be subject to taxes.
Tax planners in the corporate realm love Delaware since it legitimately reduces the amount of taxes companies have to pay. In some cases, profits in other countries are obscured as well.
The Separate Court System for the Tax Haven
The Court of Chancery is Delaware's separate court system where this court is able to adjudicate corporate litigation. Supreme Court decisions can be influenced by its corporate laws.
The state's corporate laws are routinely reviewed by The Delaware State Bar Association. Whenever reviews of tax laws are called into question, the Association gives entities that are incorporated in Delaware more favorable outcomes during reviews of legal matters. Established in 1792, The Court of Chancery's purpose is to take care of business affairs in the state.
Legislation for a Corporate Tax Hike
Both Democratic and Republican leaders have sponsored legislation that could raise about $116 million through a corporate franchise tax along with other fees. The Delaware General Assembly seems open to the idea of raising taxes and fees on companies that incorporate in the state. The money raised could greatly impact the state's budget shortfall, which is approximately $400 million.
If the legislation passes, a higher tax bracket would be established for the largest corporations. Approximately 1,900 companies would pay the new rate, per the Department of State. The current maximum is $180,000 annually, and it would raise to $250,000 per year.
Companies that have less than $250 million in revenue or assets wouldn't be affected by the legislations, as it would only apply to businesses that have at least $750 million in either of those brackets.
Although some businesses may be scared away, Secretary of State Jeffrey Bullock thinks Delaware is still a great place for corporations to incorporate because of its world-renowned Chancery Court along with a government that's always quick to react to business changes.
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