The summary of the Act states that "the principal change in the Act is to remove disincentives for companies to create Delaware jobs and invest in Delaware property that currently exists in how income is apportioned to Delaware for purposes of the corporate income tax." The Act attempts to accomplish this goal by changing Delaware's apportionment formula from a three-factor formula (property, payroll, sales) to a single-sales factor formula.
Phase-In for Most
The change to the single-sales factor apportionment will be phased-in by first doubling the weight on the sales factor in tax year 2017, and then gradually relying exclusively on the sales factor beginning in 2020 (i.e., triple-weighted sales factor in 2018, six-times-weighted sales factor in 2019, single-sales factor in 2020). Corporations organized under the laws of foreign countries that do business in the United States may not dilute their property and payroll factors by including property and payroll that is located outside of the United States in the denominator of these fractions.
Starting in 2017
Despite the phase-in for most corporations, starting in 2017, telecommunications corporations and corporations with their worldwide headquarters located in Delaware that make capital investment in those facilities may use either single sales factors or equally weighted, three-factor apportionment.
The Act also simplifies business tax compliance for smaller businesses by reducing tax payment and filing burdens. For example, the Act doubles the thresholds at which businesses have to make monthly gross receipts tax and withholding filings, enabling hundreds of Delaware businesses to file quarterly instead. The Act also provides that filing thresholds and tax calculations will be indexed for inflation, which locks-in the simplification and efficiency gains for future taxpayers.
The Act attempts to simplify compliance for smaller business. Currently, all corporations must pay 50% of their estimated tax liability for the first quarter of their taxable year, followed by payments of 20%, 20% and 10% in each of their second through fourth quarters. The Act allows smaller businesses with receipts of less than $20 million to make use of a simpler, evenly-weighted (25% per quarter) schedule. Further, the Act updates the calculation for the penalty for underpayment of estimated tax, which has not changed in more than 30 years.