Commitment to Innovation Act Enhances Tax Credits in the State of Delaware

April 2018

Summary

On Thursday, March 17, 2016, Delaware Governor Jack Markell signed into law the Commitment to Innovation Act (“The Act”). The Act is intended to enhance Delaware’s Research and Development Tax Credit (“R&D Credit”) and incentivize companies to establish their corporate headquarters in Delaware. The R&D Credit is available to companies paying for employees or consulting services to develop or try to develop a product, process, software, technique, invention, or formula. The R&D Credit also applies to attempts to make such systems better, faster, cheaper, or greener. 
 

Details

Under prior law, taxpayers could elect a Delaware R&D credit for expenses incurred related to qualified R&D activities in Delaware. Historically, this credit was allowable only against a taxpayer’s Delaware tax liability for the taxable year, i.e., it was non-refundable; and the total annual credit amount approved by Delaware was limited to $5 million and allocated proportionally among eligible applicants.
 
New Opportunities
The Act contains two new attractive features to encourage growth and R&D in Delaware:
 
  1. No cap: the annual $5 million credit cap has been removed; and
  2. Refundable: if a taxpayer cannot use the entire amount of the R&D Credit, the unused credit shall be paid to the taxpayer as a tax refund.
 
Other Incentive
In addition to the enhancements outlined above, The Act also modified the New Economy Jobs Tax Credit to further incentivize companies to establish their global corporate headquarters in Delaware. The Act does this by providing companies that do so a tax credit calculated based on the value of their total income tax withholding payments to the state.
 
Applicable Dates
The Act’s provisions described above are effective for tax periods after December 31, 2016, and should be considered when filing tax year 2017 Delaware tax returns.

For More Information
To learn more about how The Act may offer opportunities for your business, please contact:
 
Jim Feeser
Managing Director
  David Kalman
Senior Manager