Delaware ranks dead last for corporate tax climate

November 8, 2013

The Tax Foundation ranked Delaware 13th overall in its “2014 State Business Tax Climate Index,” but the state came in dead last on corporate tax rates. The high overall ranking was based on our not having a sales tax and on having low property taxes. In trying to make Delaware more attractive as a destination for new business location it would be very helpful to be in the top 10 overall along with an improvement in the corporate tax climate.

The Corporate Tax Index combines corporate income tax rates on profits and gross receipt taxes which is based on a percentage of sales and is also called a hidden sales tax as it cannot be shown on a customer’s bill. Corporate income tax rates vary from 0 to 9.9 percent around the country and Delaware is at the high end at 8.7 percent.

The bigger problem is the gross receipts tax. Only five states tax businesses for their gross receipts and three of those have no other corporate tax. The fifth state, Virginia, has a much lower corporate income tax rate than Delaware. Delaware was scheduled to repeal the GRT before the recession hit but actually raised the rate to close a budget shortfall.

This tax is particularly bad for businesses as it must be paid whether you make a profit or not, unlike the corporate tax which is levied against profits. Businesses already hit hard by the recession saw more negative cash flow from the GRT. Unlike a true sales tax, the GRT cannot be added as a line item to a bill and generally winds up absorbed by the company.

It is way past time for Delaware to repeal the gross receipts tax and to boost our ranking into the top 10 for business tax climate.

Dave T. Stevenson

director, Center for Energy Competitiveness

Caesar Rodney Institute

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