RELATING TO CORPORATION INCOME TAX
AN ACT TO LEVY, ASSESS AND COLLLECT A TAX UPON THE NET INCOME OF EVERY CORPORATION TRANSACTING OR CONDUCTING BUSINESS WITHIN THE STATE OF DELAWARE.
Be it enacted by the General Assembly of the State of Delaware:
The general purpose of this Act is to impose a tax for the use of the State of Delaware measured by the net income derived by every corporation from business activities conducted within the State.
Section 1. Title 30, Delaware Code, is amended by adding a new chapter thereto to be known as Chapter 19.
Chapter 19. Corporation income tax
§ 1901. Definitions
As used in this chapter--
"Board" shall mean the State Tax Board;
"Commercial domicile" means the principal place from which the trade or business of the taxpayer is directed or managed;
"Commissioner" shall mean the State Tax Commissioner;
"Corporation" includes a joint stock company or association and any business conducted by a trustee or trustees wherein interest or ownership is evidenced by certificate or other written instrument, and any dissolved corporation which continues to conduct business;
"Domestic corporation" means any corporation organized under the laws of this State;
"Entire net income" means the amount of taxable income computed under the provisions of the Internal Revenue Code of 1954 (Title 26, U. S. C. A. 1954), except that (a) no deduction shall be allowed for the tax imposed by this chapter, or for any net operating loss sustained prior to January 1, 1958, and (b) there shall be excluded interest from investments, dividends, and gains and losses from the sale of stocks, securities and other intangible assets not held primarily for sale in the course of the taxpayer's business;
"Foreign corporation" means any corporation other than a domestic corporation;
"Income year" means the taxable year for which the taxpayer computes its net income for purposes of the Federal Income tax;
"Taxpayer" means any corporation subject to the tax imposed by this chapter;
"State" means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof.
§ 1902. Imposition of tax on corporations; exemptions
(a) Except as provided in paragraph (b), every domestic or foreign corporation shall annually pay a tax of five per cent on its taxable income derived from business activities carried on within this State and from property located in this State during the income year. Any receiver, referee, trustee, assignee or other fiduciary, or any officer or agent appointed by any court, who conducts the business of any corporation, shall be subject to the tax imposed by this chapter in the same manner and to the same extent as if the business were conducted by the corporation.
(b) The following corporations shall be exempt from taxation under this chapter;
1. Fraternal beneficiary societies, orders or associations,
(A) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and
(B) providing for the payment of life, sick, accident, or other benefits to the members of such society, order or association, or their dependents.
2. Cemetery corporations and corporations organized or trusts created for religious, charitable, scientific, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual.
3. Business leagues, chambers of commerce, fire companies, merchants' associations, or boards of trade not organized for profit, and no part of the net earnings of which inures to the benefit of any private stockholder or individual.
4. Civic leagues or organizations not organized for profit, but operated exclusively for the promotion of social welfare.
5. Clubs organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, not part of the net earnings of which inures to the benefit of any private stockholder or member.
6. A corporation maintaining a statutory corporate office in the State but not doing business within the State of Delaware.
7. Insurance companies paying taxes upon gross premiums to the Insurance Commissioner.
§ 1903. Allocation and apportionment of net income
(a) If the entire business of the corporation is transacted or conducted within the State of Delaware, its taxable income shall be its entire net income.
(b) If the business activities of the corporation are partly within and partly without the State of Delaware, its taxable income shall be that portion of its entire net income which is allocated and apportioned to the State of Delaware in accordance with the following provisions:
1. Rents and royalties from tangible property shall be allocated to the state of situs of the property.
2. Patent and copyright royalties shall be allocated proportionately to the states in which the product or process protected by the patent is manufactured or used, or in which the publication protected by the copyright is produced or printed.
3. Gains and losses from the sale of real property shall be allocated to the state of situs of the property.
4. Gains or losses from the sale of intangible property, to the extent included in determining net income, shall be allocated to the commercial domicile of the corporation.
5. The remainder of the net income of the corporation shall be apportioned to the State of Delaware on the basis of the ratio obtained by taking the arithmetic average of these three ratios:
(A) The average of the value, at the beginning and end of the income year, of all the real and tangible personal property, owned or rented, in the State of Delaware by the taxpayer, expressed as a percentage of the average of the value at the beginning and end of the income year, of all such property of the taxpayer both within and without the State of Delaware, provided that any property, the income from which is separately allocated under paragraphs (1) and (3) above, or which is not used in the taxpayer's business, shall be disregarded. For the purposes of this paragraph, property owned by the taxpayer shall be valued at its original cost to the taxpayer; and property rented by the taxpayer shall be valued at eight times the annual rental.
(B) Wages, salaries and other compensation paid by the taxpayer to employees within the State of Delaware, except general executive officers, during the income year expressed as a percentage of all such wages, salaries and other compensation paid within and without the State of Delaware during the income year to all employees of the taxpayer, except general executive officers.
(C) Gross receipts from sales of tangible personal property physically delivered within this State to the purchaser or his agent, and gross income from other sources within this State for the income year expressed as a percentage of all such gross receipts from sales of tangible personal property and gross income from other sources both within and without the State for the income year; provided that any receipts or items of income that are excluded in determining the taxpayer's entire net income or are directly allocated under paragraphs (1) to (4) above, shall be disregarded.
(c) If the allocation and apportionment provisions set forth in this section assign more than a fair and equitable proportion of the taxpayer's net income to this State, the Tax Commissioner, in his discretion, may permit the exclusion of any one or more of the factors specified above, or the inclusion of one or more additional factors, or both; or the use of a separate accounting or of any other method necessary to produce a fair and equitable result.
§ 1904. Returns
A tentative return, covering estimated income tax liability for the current income year, to be in such form and containing such information as the Tax Commissioner shall prescribe, shall be filed with the Tax Commissioner as follows:
In the case of a calendar year taxpayer, on or before the first day of April of the current income year; and
In the case of a fiscal year taxpayer on or before the first day of the fourth month of the current income year.
A final return in such form and containing such information as the Tax Commissioner shall prescribe shall be filed with the Tax Commissioner as follows: In the case of a calendar year taxpayer, on or before the first day of April of the following year; and in the case of a fiscal year taxpayer, on or before the first day of the fourth month following the close of the fiscal year.
The first returns under this chapter shall be due as follows: In the case of a calendar year taxpayer, on or before April 1, 1958, and this tentative return shall include an estimate of the taxpayer's taxable income for the calendar year 1958; in the case of a fiscal year taxpayer, on or before the first day of the fourth month of the taxpayer's fiscal year beginning in 1958, and this tentative return shall include an estimate of the taxpayer's liability for such current income year, provided, also that a fiscal year taxpayer shall also file a return with respect to income earned in the period between January 1, 1958, and the close of the taxpayer's fiscal year in 1958.
Whenever in his judgment good cause exists, the Commissioner may allow further time for filing a return with interest at the rate of 4% per annum from the time the return was due to the date of filing thereof and payment of the tax due as shown by the report.
Every return shall have annexed thereto a certification by the president, vice-president, treasurer, assistant treasurer, chief accounting officer or any other officer of the taxpayer duly authorized so to act to the effect that the statements contained therein are true to the best of his knowledge and belief.
§ 1905. Payment of tax
The tax imposed by this chapter shall be payable as follows:
(a) Calendar year corporations--fifty per cent of the estimated tax liability shall be paid with the tentative return filed on April 1 of the current income year and the balance of the tax as computed in the final return on April 1 next following the close of the income year.
(b) Fiscal year corporations--for the fiscal years beginning in 1958 and thereafter, fifty per cent of the estimated tax liability shall be paid with the tentative return filed on the first day of the fourth month after the beginning of the current income year and the balance of the tax as computed in the final return on or before the first day of the fourth month following the close of such income year; provided that every fiscal year corporation shall, on or before the first day of the fourth month following the close of its fiscal year ending in 1958, file a return and pay the tax imposed by this chapter on that proportion of its net income for its fiscal year ending in 1958 as the number of days from January 1, 1958, to the close of the fiscal year in 1958 bears to 365.
§ 1906. Consolidated returns
An affiliated group of corporations may file a consolidated return for the taxable year in lieu of separate returns; provided, that all the corporations which constitute such affiliated group at any time during the period for which the return is made and which are subject to taxation under this chapter shall consent to the making of such consolidated return. The Tax Commissioner may prescribe such rules and regulations as he may deem necessary in order that the tax liability of any affiliated group of corporations making a consolidated return and of each corporation in the group, liable to taxation under this chapter, both during and after the period of affiliation, may be determined, computed, assessed, collected and adjusted in such manner as clearly to reflect the net income to prevent avoidance of tax liability.
"An affiliated group of corporations" shall mean a group of corporations which are eligible to file a consolidated return for Federal income tax purposes.
In the event that for any income year an affiliated group of corporations files a consolidated return for Federal income tax purposes, but does not file a consolidated return pursuant to this chapter, the tax liability of each corporation of the group shall be determined as if it had filed a separate return for purposes of the Federal income tax.
§ 1907. Amended federal return; change by Treasury Department
If a taxpayer files an amended Federal income tax return, he shall within 30 days file an amended return with respect to the tax imposed under this chapter, together with a copy of the amended federal return. If the net income reported by the taxpayer to the Treasury Department for federal income tax purposes is changed or corrected by the Treasury Department, or the tax computed on the return is redetermined by the Treasury Department such changes, corrections or redeterminations shall be reported to the Tax Commissioner within 30 days after such action by the Treasury Department becomes final.
§ 1908. Audit and reaudit of tax
The Tax Commissioner shall audit and state an account within five years after a report is filed for any tax imposed by this chapter, and is authorized to audit and state such an account at any time where a report is not filed. Such audit and other information available to the Tax Commissioner shall be the basis for the assessment of a tax where a report is not filed. If the Tax Commissioner does not audit and state an account within five years after a report is filed, an account for the tax shall be deemed audited and stated as set forth in such report and shall be final for all purposes, except as otherwise provided in this chapter. In auditing and stating accounts the Tax Commissioner may consider any report made pursuant to the provisions of this chapter and any other data which he may deem pertinent, and may make an estimate of the tax due from any taxpayer.
At any time within five years after the filing of a report the Tax Commissioner may reaudit and restate such account if it appears that the same is incorrect, and he may reaudit and restate such account at any time if he has reason to believe that any report on which the original audit and statement was based was willfully false or fraudulent, or if a report was not filed at the time of the original audit and statement and he has reason to believe that a tax or an additional tax is due. Such reaudit and restatement shall be made in the same manner as if an audit and statement had not been made, and the Tax Commissioner shall have the same powers in connection with such reaudit as with respect to the original audit, but no lien for any additional tax based on such reaudit shall be enforceable against property which prior to the restatement of the account had been transferred in good faith to a bona fide transferee for value.
Where, before the expiration of the period prescribed herein for the audit or reaudit of an account, the taxpayer has consented in writing that such period be extended, an account may be audited and stated, or reaudited and restated, at any time within such extended period. The period so extended may be further extended by subsequent consent in writing made before the expiration of the extended period.
The Tax Commissioner shall ascertain, from any amended return or report made pursuant to section 1907 and from any other information in his possession, the entire net income of the taxpayer for the fiscal or calendar year for which an amended return was filed or a change or correction made by the Treasury Department. The Tax Commissioner shall have the power to reaudit and restate the account of the taxpayer for taxes based upon the entire net income as amended, changed or corrected for such fiscal or calendar year. If from such reaudit and restatement it appears that the taxpayer has paid an excess of tax under this chapter, such excess shall be credited or refunded in the manner provided in this chapter. If from such reaudit and restatement it appears that an additional tax is due, in the event that an amended return or report was filed as required by section 1907, such additional tax shall be payable within thirty days after service of the notice hereinafter prescribed; provided, however, if no such amended return or report was filed as required by section 1907, any additional tax resulting from a change in the amount of net income originally returned to the United States Treasury Department together with the penalties and additional amounts prescribed by this chapter shall be due and payable on demand.
Notice of audit and statement or reaudit and restatement may be served personally, or by mail addressed to the taxpayer at the postoffice address given in the last report filed by it pursuant to the provisions of this chapter, unless subsequently to the filing of such report the Tax Commissioner shall have been notified in writing of a change in address, in which event such service shall be made by mailing the notice to such new address, or such notice may be served by publication at least once in each of two successive weeks in a newspaper published in the county in which the corporation maintains its principal office.
§ 1909. Claims for abatement or refund
Claims for abatement or refund shall be in the manner and form as follows:
(a) A taxable may apply to the Tax Commissioner, Tax Board, and the Superior Court, in order named, as provided, for refund or abatement of the taxes imposed by this chapter alleged to have been erroneously or illegally assessed or collected or of any interest or penalty alleged to have been assessed or collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected from the taxable at any time within five years from the date such return was originally required to be filed or 30 days from the date of payment of any additional tax.
(b) The Tax Board shall grant a hearing thereon and if it shall determine that the tax, interest or penalties, are excessive or incorrect, it shall resettle the same according to the law and the facts and adjust the computation of tax, interest or penalties accordingly. The Tax Commissioner shall notify the taxable of such determination and shall refund to the taxable the amount paid in excess of taxes, interest and penalties found by it to be due.
(c) If the Tax Commissioner fails to act upon or rejects any claim for abatement or refund of taxes alleged to have been illegally or erroneously assessed or paid, within 60 days from the filing of such claim, the taxable shall have and possess rights of appeal to the Tax Board and a further remedy as provided in section 328, Title 30, Delaware Code.
Payment of refunds shall be in the manner and form as provided in section 1183 (a), (b) and (d), Title 30, Delaware Code; excepting nevertheless that no interest shall be computed until after the expiration of 90 days from the date the overpayment was made.
§ 1910. Lien of tax
The amount of any tax including penalty and interest due under this chapter shall, until paid, constitute a lien on the real property of the taxpayer upon the filing by the Commissioner in the Superior Court of the county in which the taxpayer's principal place of business in this State is located, a certificate of assessment setting forth the amount of the tax including penalties and any interest due hereunder which has become final. The certificate of assessment upon being docketed in the judgment docket of the said Court as hereinbefore set forth shall have the full force and effect of a judgment.
§ 1911. Collection of tax
(a) In addition to other remedies set forth in this chapter action may be brought at any time by the Attorney General at the instance of the Tax Commissioner, in the name of the State, to recover the amount of any taxes, penalties and interest due under this chapter.
§ 1912. Violations and penalties
(d) If any taxes, penalties or interest due under this article are not paid, or any report required is not filed, and the Tax Commissioner is satisfied that the failure to make such payment or file such report is intentional, it may so report to the Attorney General, who shall immediately bring an action in the name of the people of the State, for the forfeiture of the charter or franchise of any corporation failing to make such payment, or file such report, and if it be found that such failure was intentional, judgment shall be rendered in such action for the forfeiture of such charter and for its dissolution if a domestic corporation and if a foreign corporation for the annulment of its franchise to do business in this State.
(e) In any case where additional tax is found to be due, if it appears that the return was made in good faith and understatement of the tax is not due to any fault of the taxable there shall be no penalty added because of such understatement but interest shall be added to the amount of the deficiency at the rate of one-third of one per cent for each month or fraction of a month.
(c) If it appears that the understatement of tax is due to negligence on the part of the taxable, there shall be added to the amount of the deficiency a penalty of five per cent thereof and, in addition, interest at the rate of one-third of one per cent per month or fraction of a month, which interest shall be on the amount of tax only.
(d) If it appears that the return of income is grossly understated or is false or fraudulent, there shall be added to the tax on the additional income discovered to be taxable a penalty of one hundred per cent, and in addition, interest added at the rate of one-third of one per cent per month or fraction of a month which interest shall be on the amount of tax only.
(e) If any taxable, without intent to evade any tax imposed by this chapter fails to file a return of income, or pay a tax if one is due, at the time required by or under the provisions of this chapter, but shall voluntarily file a return of income and pay the tax due within thirty days thereafter, there shall be added to the tax a penalty equal to five per cent thereof and in addition interest at the rate of one-third per cent per month or fraction of a month, which interest shall be on the amount of tax only.
If any taxable willfully fails or refuses to file a return of income or to pay a tax if one is clue within 30 days of the time required by or under the provisions of this chapter, there shall be added to the tax, a penalty of one hundred per cent thereof, and in addition, interest added at the rate of one-third per cent per month or fraction of a month, which interest shall be on the amount of tax only.
(f) Any person, or corporation or any officer or employee of any corporation, who with intent to evade any requirement of this chapter or any lawful requirement of the Tax Department thereunder, fails to pay any tax or to make, sign or verify any return or to supply any information required by or under the provisions of this chapter, or who, with like intent, shall make, render, sign or verify any false or fraudulent return or statement or shall supply any false or fraudulent information, shall be fined not more than $500 or imprisoned not more than 6 months or both. The penalties provided by this paragraph shall be additional to all other penalties in this chapter provided.
(g) Any taxable who refuses or .neglects to make the return required to be made under this chapter within 30 days after the last day for making such return, or who refuses or neglects to pay the tax assessed against such taxable within 30 days after it becomes due, shall be fined not more than $500 or imprisoned not more than 6 months, or both.
The Tax Board shall have power to compromise any penalty for which it is authorized to bring action under the foregoing provisions and all penalties collected by the Tax Department either by compromise or suit shall be paid to the State Treasurer and the same shall go into and become part of the General Fund.
() The failure to do any act required by or under the provisions of this chapter shall be deemed an act committed in part at the office of the Tax Department in Dover. The certificate of the Tax Commissioner to the effect that a tax has not been paid, that a return has not been filed or that information has not been supplied, as required by or under the provisions of this chapter, shall be prima facie evidence that such tax has not been paid, that such return has not been filed or that such information has not been supplied.
(a) If any taxable, who has failed to file a return or who has filed an incorrect or insufficient return and has been notified by the Tax Department of this delinquency, refuses or neglects within 30 days after such notice to file a proper return or files a fraudulent return, the income of the taxable shall thereupon be determined by the Tax Department according to its best information and belief and the tax shall be levied, assessed, collected and paid, together with penalty equal to one hundred per cent of the amount of the tax, together with interest at the rate of one-third of one per cent per month or fraction of a month on the amount of tax plus the penalty. The Tax Board may in its discretion allow further time for filing of a return in such cases.
(k) If a taxable has failed, without good cause to file a return within the time prescribed by law, or has filed a fraudulent return or having filed an incorrect return has failed, after notice, to file a proper return, the Tax Commissioner shall give full effect to the penalty provided in paragraph (j) of this section and shall not reduce the tax, interest and penalty below double the amount for which the taxable is found to be properly assessed but the Tax Board shall have power to reduce this penalty provided by paragraph (j) of this section to not less than twenty-five per cent of the amount of the tax with interest added at one-third of one per cent per month, or fraction of a month, which interest shall be on the amount of the tax plus the penalty.
(1) The interest provided for in this section shall in all cases be computed from the time when the return was originally required to be filed to the date of payment.
(m) In case of an underpayment of the tax required to be paid at the time the tentative return is filed, there shall be added to the tax for the taxable year an amount determined at a rate of one-third of one per cent upon the amount of the underpayment for each month or fraction thereof during which the tentative tax remains unpaid.
The amount of the underpayment shall be the excess of
1. The amount of the payment which would be required to be made if the estimated tax were equal to 70 per cent of the tax shown on the final return for the income year or, if no return was filed, 70 per cent of the tax for such year, over
2. The amount paid.
Notwithstanding the foregoing, there shall be no addition to the tax if the tentative tax payment equals or exceeds the amount which would be due if the estimated tax for the income year were equal to whichever of the following amounts is the lesser
1. The tax shown on the return of the taxpayer for the preceding income year;
2. An amount equal to 70 per cent of the tax for the income year computed by placing on an annualized basis the taxable income for the first two months of the income year.
(n) The Superior Court shall have exclusive jurisdiction of all offenses under this chapter.
§ 1913. Liability of transferee for tax
The transferree of property from a taxpayer subject to this chapter shall be liable for the tax imposed herein, to the extent of the value of the property transferred, if such transfer was made to hinder, avoid or defeat the collection of such tax from the taxpayer.
§ 1914. Limitations of time
The provisions of the statutes of limitations relative to the limitation of time of enforcing a civil remedy shall not apply to any proceeding or action taken to levy, appraise, assess, determine or enforce the collection of any tax or penalty prescribed by this chapter, provided, however, that as to real estate in the hands of persons who are owners thereof who would be purchasers in good faith but for such tax or penalty and as to the lien on real estate of mortgages held by persons who would be holders thereof in good faith but for such tax or penalty, all such taxes and penalties shall cease to be a lien on such real estate as against such purchasers or holders after the expiration of ten years from the date such taxes became due and payable. The limitations herein provided for shall not apply to any transfer from a corporation to a person or corporation with intent to avoid payment of any taxes, or where with like intent the transfer is made to a grantee corporation, or any subsequent grantee corporation, controlled by such grantor or which has any community of interest with it, either through stock ownership or otherwise.
§ 1915. Administration by State Tax Commissioner
(a) The State Tax Commissioner shall have power and authority to make and enforce such necessary rules and regulations not inconsistent with the law as he may deem necessary for the enforcement of the provisions of this chapter; to examine the books and records of the taxable; to subpoena witnesses; to examine the books and records of a transferee or grantee corporation and notwithstanding the provisions of section 1185, Title 30, Delaware Code, to exchange information concerning tax returns and tax liability with officials of other states and the Commissioner of Internal Revenue as provided in section 1186, Title 30, Delaware Code.
§ 1916. Short title
This Act shall be entitled "Delaware Corporate Income Tax Law of 1958".
§ 1917. Constitutionality
If any part or parts of this Act shall be held to be unconstitutional, such unconstitutionality shall not affect the validity of the remaining parts of this Act. The Legislature hereby declares that it would have passed the remaining parts of this Act if it had known that such part or parts thereof would be declared unconstitutional.
§ 1918. Time of taking effect
The tax shall be first effective with respect to income earned subsequent to December 31, 1957.
Approved December 20, 1957.