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. This bill, passed by the state Senate along party lines and approved by the House the previous week, seeks to mitigate the financial impact of recent changes in federal tax policy.
The new law, formally known as HB 255, decouples certain elements of the federal tax code from state regulations. The adjustments arise from the large tax bill passed by Congressional Republicans this summer, which offered substantial corporate tax breaks. State Democrats have voiced concerns that these changes will adversely affect Delaware’s corporate income tax receipts.
Under the legislation, businesses can continue to claim deductions for research and development expenditures, but these deductions will now be spread out over multiple years. This mirrors the previous structure before the federal tax changes took effect. Additionally, the law retroactively modifies the state tax code to allow businesses to decouple from federal rules governing full bonus appreciation expensing for tax years 2022 and 2025 going forward.
“This bill takes our largest problem, when you look just mathematically, the largest problem we were facing,” said Meyer. He pointed out that the financial challenges stemmed not from state budget practices but rather from actions taken at the federal level.
During discussions leading up to the Senate vote, concerns were raised about the overall impact of the corporate income tax, which accounts for approximately 5% of Delaware’s $6.5 billion budget. Minority Whip Brian Pettyjohn, a Republican from Georgetown, emphasized the importance of a diversified economy, stating, “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 expressed apprehension that the decoupling provisions could discourage businesses from incorporating in Delaware. State Senator Eric Buckson, representing Dover, criticized the swift passage of the bill, suggesting it sends a negative message to the business community. “It’s this reactionary, again, crisis type of movement that we’re doing here in this General Assembly,” he remarked.
In contrast, State Senator Stephanie Hansen sought to clarify the implications of the legislation, suggesting that the primary effects would be felt by larger corporations rather than small businesses. “We’re not talking about a big effect on mom and pop businesses,” she noted.
The urgency surrounding these legislative changes reflects the upcoming revenue forecast for Delaware’s fiscal year 2027, which is scheduled for December. This forecast will be critical in assessing the long-term viability of the state’s budget and the effectiveness of the newly enacted law.
