2006 Delaware Code - CHAPTER 19 — CORPORATION INCOME TAX

§ 1901. Definitions.

As used in this chapter:

(1) "Board" means the Tax Appeal Board.

(2) "Commercial domicile" means the principal place from which the trade or business of the taxpayer is directed or managed.

(3) "Corporation" includes a joint stock company or any association which is taxable as a corporation under the federal income tax law.

(4) "Domestic corporation" means any corporation organized under the laws of this State.

(5) "Federal income tax" means the tax imposed on corporations by the federal Internal Revenue Code of 1986 and amendments thereto.

(6) "Foreign corporation" means any corporation other than a domestic corporation.

(7) "Income year" means the taxable year for which the taxpayer computes its net income for purposes of the federal income tax.

(8) "Secretary" and "Secretary of Finance" mean the Secretary of Finance or the Secretary's duly authorized designee; provided, that any such delegation of authority is consistent with the provisions of Chapter 83 of Title 29.

(9) "Taxpayer" means any corporation subject to the tax imposed by this chapter.

(10) "Treasury Department" means the Treasury Department of the United States.

(11) "State" means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States and any foreign country or political subdivision thereof. (30 Del. C. 1953, § 1901; 51 Del. Laws, c. 298; 51 Del. Laws, c. 315, 1; 57 Del. Laws, c. 741, § 8A; 67 Del. Laws, c. 408, § 3; 70 Del. Laws, c. 186, § 1.)

§ 1902. Imposition of tax on corporations; exemptions.

(a) Every domestic or foreign corporation that is not exempt under subsection (b) of this section shall annually pay a tax of 8.7 percent on its taxable income, computed in accordance with § 1903 of this title, which shall be deemed to be its net income derived from business activities carried on and property located within the State during the income year. Any receiver, referee, trustee, assignee or other fiduciary or any officer or agent appointed by any court who conducts the business of any corporation shall be subject to the tax imposed by this chapter in the same manner and to the same extent as if the business were conducted by the corporation.

(b) The following corporations shall be exempt from taxation under this chapter:

(1) Fraternal beneficiary societies, orders or associations:

a. Operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system; and

b. Providing for the payment of life, sick, accident or other benefits to the members of such society, order or association or their dependents;

(2) Cemetery corporations and corporations organized or trusts created for religious, charitable, scientific or educational purposes or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual;

(3) Business leagues, chambers of commerce, fire companies, merchants' associations or boards of trade not organized for profit, and no part of the net earnings of which inures to the benefit of any private stockholder or individual;

(4) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare;

(5) Clubs organized and operated exclusively for pleasure, recreation and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private stockholder or member;

(6) A corporation maintaining a statutory corporate office in the State but not doing business within the State;

(7) Insurance companies paying taxes upon gross premiums to the Insurance Commissioner;

(8) Corporations whose activities within this State are confined to the maintenance and management of their intangible investments or of the intangible investments of corporations or statutory trusts or business trusts registered as investment companies under the Investment Company Act of 1940, as amended (15 U.S.C. 80a-l et seq.) and the collection and distribution of the income from such investments or from tangible property physically located outside this State. For purposes of this paragraph, "intangible investments" shall include, without limitation, investments in stocks, bonds, notes and other debt obligations (including debt obligations of affiliated corporations), patents, patent applications, trademarks, trade names and similar types of intangible assets;

(9) A corporation that is an S corporation for federal income tax purposes for any taxable year beginning on or after January 1, 1961;

(10) A corporation which qualifies as a domestic international sales corporation (DISC) under the provisions of subchapter N of Chapter 1 of the federal Internal Revenue Code [26 U.S.C. § 861 et seq.] and which has in effect for the entire taxable year a valid election under federal law to be treated as a DISC. If a corporation makes such an election under federal law, each person who at any time is a shareholder of such corporation shall be subject to taxation under Chapter 11 or Chapter 19 of this title on the earnings and profits or taxable income of this DISC in the same manner as provided by federal law for all periods for which the election is effective;

(11) An entity that is a real estate mortgage investment conduit as defined in § 860D of the Internal Revenue Code of 1986 [26 U.S.C. § 860D], as amended;

(12) An entity that is registered as an investment company under the Investment Company Act of 1940, as amended (15 U.S.C. § 80a-1 et seq.); and

(13) An entity that is a real estate investment trust as defined in § 856 of the Internal Revenue Code of 1986 (26 U.S.C. § 856) as amended;

(14) An entity that is a homeowners association as defined in § 528 of the Internal Revenue Code (26 U.S.C. § 528) or successor provision. (30 Del. C. 1953, § 1902; 51 Del. Laws, c. 298; 51 Del. Laws, c. 315, §§ 2, 3; 57 Del. Laws, c. 136, § 1; 57 Del. Laws, c. 737, § 2; 58 Del. Laws, c. 293, § 1; 58 Del. Laws, c. 396, § 1; 59 Del. Laws, c. 150, § 1; 61 Del. Laws, c. 76, § 1; 64 Del. Laws, c. 461, § 10; 65 Del. Laws, c. 155, § 2; 65 Del. Laws, c. 160, § 4; 66 Del. Laws, c. 267, § 2; 67 Del. Laws, c. 295, § 1; 67 Del. Laws, c. 408, §§ 4, 5; 68 Del. Laws, c. 423, § 1; 69 Del. Laws, c. 188, §§ 6, 7; 71 Del. Laws, c. 314, § 4; 73 Del. Laws, c. 329, § 72; 75 Del. Laws, c. 412, § 1.)

§ 1903. Computation of taxable income.

(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 increased by (i) 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 (ii) 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:

(1) 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.];

(2) 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;

(3) 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;

(4) 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);

(5) 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;

(6) 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;

(7) 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;

(8) 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.

(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) 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 on the basis of the ratio obtained by taking the arithmetical average of these 3 ratios:

a. 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 (1) of this subsection or which is not used in the taxpayer's business, shall be disregarded. For the purposes of this paragraph, 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;

b. 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;

c. 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 (1) to (6) of this subsection shall be disregarded.

(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) In determining the taxable income of a fiscal year taxpayer for that portion of its fiscal year ending within 1977 which falls within the calendar year 1977, the taxpayer may, at its election, treat such period as though it were the entire fiscal year, or it may compute its taxable income for the entire fiscal year and pay the tax herein imposed on that portion of the taxable income so determined which the number of days from January 1, 1977, to the close of the fiscal year in 1977 bears to 365. (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.)

§ 1904. Returns.

(a) A tentative return, covering estimated income tax liability for the current income year, to be in such form and containing such information as the Secretary of Finance shall prescribe, shall be filed with the Secretary of Finance as follows: In the case of a calendar year taxpayer, on or before the 1st day of April of the current income year; and, in the case of a fiscal year taxpayer, on or before the first day of the fourth month of the current income year.

(b) A final return in such form and containing such information as the Secretary of Finance shall prescribe shall be filed with the Secretary of Finance as follows: In the case of a calendar year taxpayer, on or before the 1st day of April of the following year; and, in the case of a fiscal year taxpayer, on or before the first day of the fourth month following the close of the fiscal year.

(c) The first returns under this chapter shall be due as follows: In the case of a calendar year taxpayer, on or before April 1, 1958, and this tentative return shall include an estimate of the taxpayer's taxable income for the calendar year 1958; in the case of a fiscal year taxpayer, on or before the first day of the fourth month of the taxpayer's fiscal year beginning in 1958, and this tentative return shall include an estimate of the taxpayer's liability for such current income year; provided, that a fiscal year taxpayer shall also file a return with respect to income earned in the period between January 1, 1958, and the close of the taxpayer's fiscal year in 1958.

(d) Every return shall have annexed thereto a certification by the president, vice-president, treasurer, assistant treasurer, chief accounting officer or any other officer of the taxpayer duly authorized so to act to the effect that the statements contained therein are true to the best of the officer's knowledge and belief.

(e) Every domestic or foreign corporation not exempt under § 1902 of this title shall file an annual tentative return and an annual final return regardless of the amount of its estimated tax liability, its gross income or its taxable income.

(f) The Secretary may require every corporation exempt from taxation under § 1902(b) of this title to file an information return for each taxable year setting forth the items of gross income and deductions and such other information as the Secretary, by forms or regulation, may prescribe. (30 Del. C. 1953, § 1904; 51 Del. Laws, c. 298; 57 Del. Laws, c. 67, § 1; 57 Del. Laws, c. 172; 57 Del. Laws, c. 707, § 7; 57 Del. Laws, c. 741, § 8B; 64 Del. Laws, c. 461, § 9; 68 Del. Laws, c. 187, § 13; 70 Del. Laws, c. 186, § 1.)

§ 1905. Payment of tax.

The tax imposed by this chapter shall be payable as follows:

(1) Calendar year corporations. -- Fifty percent of the estimated tax liability for the current taxable year shall be paid with the tentative return filed on April 1 of the current taxable year, and the balance of the estimated tax shall be paid in installments as follows: 20% on the 15th day of June of the taxable year; 20% on the 15th day of September of the taxable year; and 10% on the 15th day of December of the taxable year.

(2) Fiscal year corporations. -- Fifty percent of the estimated tax liability for the current taxable year shall be paid with the tentative return filed on the first day of the fourth month of the current taxable year, and the balance of the estimated tax shall be paid in installments as follows: 20% on the fifteenth day of the sixth month of the taxable year; 20% on the fifteenth day of the ninth month of the taxable year; and 10% on the fifteenth day of the twelfth month of the taxable year.

(3) Additional taxes due on final return. -- Any additional tax due as computed in the final return required to be filed pursuant to § 1904 of this title shall be paid with such final return.

(4) Tentative tax declarations and payments are not required for returns for taxable periods of less than 92 calendar days. (30 Del. C. 1953, § 1905; 51 Del. Laws, c. 298; 51 Del. Laws, c. 315, § 5; 60 Del. Laws, c. 15, § 1; 60 Del. Laws, c. 193, § 1; 71 Del. Laws, c. 217, § 7.)

§ 1906. Short title.

This chapter shall be entitled "Delaware Corporate Income Tax Law of 1958." (30 Del. C. 1953, § 1918; 51 Del. Laws, c. 298; 51 Del. Laws, c. 315, § 14; 68 Del. Laws, c. 187, §§ 12, 14.)

§ 1907. Time of taking effect of tax.

The tax shall be first effective with respect to income earned subsequent to December 31, 1957. (30 Del. C. 1953, § 1920; 51 Del. Laws, c. 298; 51 Del. Laws, c. 315, § 16; 68 Del. Laws, c. 187, §§ 12, 14.)

§ 1908. Historic rehabilitation.

Any entity taxable under this section is eligible for tax credits in accordance with the Historic Preservation Tax Credit Act (Chapter 18 of this title), which credits shall be against taxes imposed under this chapter; provided, however, that all claimed credits are accompanied by a Certificate of Completion issued by the State Historic Preservation Office certifying that such credits have been earned in compliance with that act. (73 Del. Laws, c. 6, § 7.)

§§ 1909-1911. Interests and additions to the tax in case of deficiencies; addition to the tax in case of nonpayment; refunds.

Repealed by 68 Del. Laws, c. 187, § 12, eff. Jan. 1, 1992.

§ 1912. Penalties -- Late filing; failure to file returns; false and fraudulent return; failure to maintain records.

(a) Any person who willfully fails, neglects or refuses to make a return or to pay the tax as prescribed in this chapter or who shall refuse to permit the Secretary of Finance to examine the books, papers and records of any corporation liable to pay tax under this chapter shall be fined not more than $3,000, or imprisoned not more than 6 months, or both. Such penalty shall be in addition to any other penalties imposed by this chapter.

(b) Any person who willfully makes a false and fraudulent return of net income, made taxable by this chapter, shall be fined not more than $3,000, or imprisoned not more than 6 months, or both. Such penalty shall be in addition to any other penalties imposed by this chapter.

(c) Any corporation which fails to maintain and keep, for a period of 3 years after any return is filed under this chapter, such record or records of its business within this State for the period covered by such return, as may be required by the Secretary of Finance, shall be fined $3,000. Such penalty shall be in addition to any other penalties imposed by this chapter.

(d) [Deleted.]

(e) The Superior Court shall have exclusive jurisdiction over all offenses under this chapter.

(f) [Deleted.] (30 Del. C. 1953, § 1913; 51 Del. Laws, c. 298; 51 Del. Laws, c. 315, § 11; 57 Del. Laws, c. 66; 57 Del. Laws, c. 741, § 8B; 59 Del. Laws, c. 113, § 5; 61 Del. Laws, c. 425, §§ 1-4; 63 Del. Laws, c. 293, §§ 3, 4; 67 Del. Laws, c. 40, § 15; 68 Del. Laws, c. 187, § 12.)

§§ 1913-1916. Court action to compel furnishing of information; lien of tax; collection of tax; administration by Secretary of Finance.

Repealed by 68 Del. Laws, c. 187, § 12, eff. Jan. 1, 1992.

§§ 1917, 1918. Short title; time of taking effect of tax.

Transferred.