Delaware Governor Matt Meyer has signed a significant piece of legislation aimed at addressing a projected $410 million revenue shortfall in the state’s budget over the next three years. The bill, which was passed by the state Senate on a party-line vote, received approval from the House of Representatives last week and was finalized on Wednesday afternoon.
The legislation, identified as HB 255, is a response to fiscal challenges exacerbated by recent federal tax changes. State Democrats assert that corporate tax breaks included in a substantial tax bill approved by Congressional Republicans earlier this summer will negatively impact Delaware’s corporate income tax receipts. The new law seeks to decouple specific elements of the federal and state tax codes to mitigate these effects.
The federal tax legislation enabled immediate tax breaks for research and development expenditures, along with the rapid expensing of business and production property. In reaction, Delaware lawmakers have amended state tax regulations, allowing businesses to claim these deductions over several years rather than immediately, a practice similar to prior regulations.
The bill retroactively decouples research and development tax breaks for the tax year 2022, while also maintaining provisions for future years. It further separates federal retroactivity for full bonus appreciation expensing starting in tax year 2025. Meyer emphasized the urgency of the legislation, stating, “This bill takes our largest problem, when you look just mathematically, the largest problem we were facing.”
The corporate income tax constitutes approximately 5% of Delaware’s total budget, which stands at $6.5 billion. During a Senate committee hearing preceding the vote, Minority Whip Brian Pettyjohn, a Republican from Georgetown, highlighted the importance of diversified revenue streams, noting, “We have lots of buckets, and if we were just dependent on one bucket of revenue, we’d be in big trouble.”
Republican lawmakers have raised concerns regarding the potential consequences of decoupling on businesses within the state and beyond. They fear that the new law may deter companies from incorporating in Delaware. State Senator Eric Buckson expressed apprehension about the swift passage of the bill, suggesting it sends a negative signal to the business community. “It’s this reactionary, again, crisis type of movement that we’re doing here in this General Assembly,” he stated.
In contrast, State Senator Stephanie Hansen argued that the changes would predominantly affect larger corporations, noting that small businesses would not face significant impacts. “We’re not talking about a big effect on mom and pop businesses,” she remarked, addressing the concerns raised by her Republican colleagues.
The state’s next revenue forecast for the fiscal year 2027 is slated for December, which will provide further insights into the economic landscape and budgetary requirements moving forward. As Delaware navigates these financial adjustments, the implications of the new law will likely continue to spark debate among lawmakers and the business community alike.
