Delaware - Taxation



Delaware is the country's corporate tax haven, with over half of its publicly held corporations registered there, including 58% of the Fortune 500. Corporations are attracted by Delaware's exemption from taxation of the subsidiaries of holding companies (so the holding-company headquarters are located in Delaware and the operating subsidiaries generally elsewhere). Financial institutions are attracted by its absence of usury limits. The fees paid by hundreds of thousands companies allow it to be one of five states with no sales tax. Combined state and local taxes in 2003 amounted to 7.3% of income, the 3rd smallest percentage in the US, ahead of only New Hampshire and Alaska. In Delaware's state tax revenues come primarily from levies on personal and corporate income, inheritance and estates, motor fuels, cigarettes, state lottery, and alcoholic beverages.

Delaware's individual income tax is a seven-bracket progressive schedule ranging from 2.2% to 5.55% for income under $60,000 and 5.95% for income over that amount. Personal exemptions are in the form of $110 tax credits per adult and per child. There is no general sales tax, but selective sales taxes (excises) are imposed on gasoline (23 cents per gallon) and other motor fuels, cigarettes (24 cents a pack) and other tobacco products, alcoholic beverages, amusements, insurance premiums, pari-mutuels, public utilities, and other selected items. The corporate income tax is a flat tax of 8.7%. As part of their business and occupational license fees, businesses are assessed a gross receipts tax ranging from 0.096% to 1.92%, with the highest rate applied to rentals. Except for rentals, license fees also include an annual flat fee (generally $75 per business establishment) and monthly exclusions from the gross receipts tax ($1million for manufacturers and $50,000 for most services). The annual franchise tax ranges from a minimum of $35 to a maximum of $165,000, calculated either according to the number of authorized shares in the company (the minimum applying to companies with 3,000 or fewer shares) or according to the assumed par value of capital (the minimum applying to assumed par values of less than $140,000, and the maximum reached at a par value of $660 million). As is true for most states, Delaware's estate tax is set equal to the federal exemption from the payment of the federal death tax for the payment of state death taxes (estate taxes), and is, therefore, scheduled to be phased out by 2007 in tandem with the phase-out of the federal tax credit, absent countervailing action by the state. Revenue losses from the phase-out of Delaware's estate tax are estimated at $7.6 million in 2003, $16.3 million in 2004, and $34.7 million in 2007. Delaware has repealed its gift tax. Other taxes include various state license fees, a lodging tax, a realty transfer tax and local property taxes.

In 2003, state tax collections totaled $2.174 billion, or $2,692 per capita, including 36% from licenses, 33% from individual income taxes, 14.8% from selective sales taxes, 11.5% from corporate income taxes, and 1.9% from death and gift taxes.

The following table from the US Census Bureau provides a summary of taxes collected by the state in 2002.

Delaware

  ($000) PER CAPITA
Total Taxes 2,173,600 2,692.15
Property taxes (X) (X)
Sales and gross receipts 322,835 399.85
General sales and gross receipts (X) (X)
Selective sales taxes 322,835 399.85
Alcoholic beverage 11,739 14.54
Amusements (X) (X)
Insurance Premiums 76,178 94.35
Motor fuels 107,713 133.41
Pari-mutuels 198 0.25
Public utilities 30,477 37.75
Tobacco products 27,652 34.25
Other selective sales 68,878 85.31

Delaware

  ($000) PER CAPITA
Licenses (continued)    
Alcoholic beverages 627 0.78
Amusements 373 0.46
Corporation 533,528 660.81
Hunting and fishing 931 1.15
Motor vehicle 31,850 39.45
Motor vehicle operators 200 0.25
Public utility 3,442 4.26
Occupation and business, NEC 185,591 229.87
Other 23,830 29.52
Other taxes 1,070,393 1,325.75
Individual income 716,647 887.61
Corporation net income 251,643 311.68
Death and gift 41,342 51.2
Documentary and stock transfer 60,192 74.55
Severance (X) (X)
Other 569 0.7


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