Delaware General Assembly

AN ACT TO AMEND TITLE 30 OF THE DELAWARE CODE RELATING TO RESEARCH AND DEVELOPMENT TAX CREDIT.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE :

“(17) ‘Gross Receipts’ shall have the same definition as that contained in the denominator described in §1903(b)(6)c. of this title plus the amount of federal taxable income of the taxpayer attributable to patent and copyright royalties.

(18) ‘Delaware base amount’ shall mean the base amount as defined in Section 41(c) of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. Section 41(c)), except that references to ‘qualified research expenses’ shall mean ‘Delaware qualified research and development expenses’ and references to ‘qualified research’ shall mean ‘Delaware qualified research and development.’ References to ‘fixed base percentage’ shall mean the percentage which the aggregate Delaware qualified research and development expenses for the four taxable years immediately preceding the taxable year in which the expenses are taken into account for purposes of Delaware income taxation bear to the aggregate gross receipts for such years. The fixed base percentage for a taxpayer who has fewer than four but at least one taxable year with gross receipts and Delaware qualified research and development expenses shall be determined in the same manner using only the number of immediately preceding taxable years in which both existed to arrive at the percentage. In the event the taxpayer has in such four immediately preceding taxable years no year in which it had both gross receipts and Delaware qualified research and development expenses, the fixed base percentage shall be deemed to be zero.

(19) ‘Delaware qualified research and development’ shall mean qualified research as defined in Section 41(d) of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. Section 41(d)) that is conducted in this State. The funding of research and development by any person or entity under common control with the ultimate parent corporation of the taxpayer shall not constitute ‘funded research’ as described in Section 41(d)(4)(H) of the Internal Revenue Code of 1986 for the purpose of determining Delaware qualified research and development hereunder.

(20) ‘Delaware qualified research and development expenses’ shall mean qualified research expenses as defined in Section 41(b) of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. Section 41(b)) taken into account for purposes of Delaware income taxation for Delaware qualified research and development.

(21) ‘Qualified tax liability’ shall mean the liability for taxes imposed under Chapters 19 and 11 of this title on corporations, shareholders of an S corporation, sole proprietors, partners or members of any other pass-through entity eligible to apply for credits under this subchapter remaining after application of all other credits allowed under this chapter.

(22) ‘Research and development tax credit’ shall mean the credit provided under Section 2070 of this title.”.

Section 4. Amend Chapter 20, Title 30 of the Delaware Code, by adding thereto a new subchapter VIII to read as follow:

“Subchapter VIII. Credit for research and development expenses.

§ 2070. Amount of credit and applicable procedures.

(a) A taxpayer who takes into account for purposes of Delaware income taxation Delaware qualified research and development expenses in a taxable year may apply for a research and development tax credit as provided in this subchapter. By September 15 of a tax year, taxpayers must submit an application for the credit on a form prescribed by the Director.

(b) Subject to the limitation of § 2075 on overall credits and the limitation described in subsection (c) of this section, a taxpayer may elect a Delaware Research and Development Tax Credit for the taxable year equal to (1) ten percent of the excess of the taxpayer’s total Delaware qualified research and development expenses for the taxable year over the taxpayer’s Delaware base amount, or (2) 50% of Delaware’s apportioned share of taxpayer’s federal research and development tax credit calculated using the alternative incremental credit method under Section 41(c)(4) of the Internal Revenue Code of 1986, using Federal definitions and methodology. Delaware’s apportioned share of the federal credit shall be the amount of the alternative incremental credit the taxpayer can claim under Section 41(c)(4), multiplied by a percentage equal to the ratio of the taxpayer’s Delaware qualified research and development expenses for the taxable year to the taxpayer’s total qualified research and development expenses for the taxable year. Taxpayer’s Delaware Research and Development Tax Credit determination election shall be an annual election, and shall be independent of Taxpayer’s federal research and development tax credit determination.

(c) The Research and Development Tax Credit calculated pursuant to subsection (b) shall not exceed in any one taxable year 50% of the qualified tax liability for that taxable year.

(d) By December 15 following the date of the application, the Director shall notify the taxpayer of the amount of the taxpayer’s approved Delaware Research and Development Tax Credit taking into account the limitation contained in § 2075.

(e) A Research and Development Tax Credit approved by the Director shall be applied against the taxpayer’s qualified tax liability for the taxable year in which the qualified research and development expenses were taken into account for purposes of Delaware income taxation. In the case of partnerships, the credit shall be allocated among partners as provided in Section 41(f)(2)(B) of the Internal Revenue Code of 1986.

(f) If, by virtue of the limitation described in subsection (c), the taxpayer cannot use the entire amount of the approved Research and Development Tax Credit for the taxable year in which it is first approved, then the approved excess may be carried over to succeeding taxable years and used as a credit against the qualified tax liability of the taxpayer for those taxable years. The approved Research and Development Tax Credit provided by this chapter may be carried over and applied to no more than fifteen succeeding taxable years following the first taxable year for which the taxpayer was entitled to claim the credit.

(g) A taxpayer is not entitled to carry back or assign an unused Research and Development Tax Credit.

§ 2071. Application of Internal Revenue Code.

Any term used in this subchapter shall have the same meaning as when used in a comparable context in the Internal Revenue laws of the United States, unless a different meaning is clearly required or unless any provision of this subchapter ascribes a different meaning to such term. References to the Internal Revenue Code shall mean the sections of the Internal Revenue Code as existing on any date on which any expenses subject to credit under this subchapter are taken into account for purposes of Delaware income taxation. However, if those sections of the Internal Revenue Code referenced in this chapter are repealed or terminated, references to the Internal Revenue Code shall mean those sections last having full force and effect. If, after repeal or termination, the Internal Revenue Code sections are revised or reenacted, references herein to Internal Revenue Code sections shall mean those revised or reenacted sections.

§ 2072. Determination of qualified research and development expenses.

In prescribing standards for determining which qualified research and development expenses are considered Delaware qualified research and development expenses for purposes of computing the credit provided by this chapter, the Director may consider the location where the services are performed and other factors that the Director within his sound discretion reasonably determines are relevant for the determination.

§ 2073. Time limitations.

(a) The Director shall not approve a Research and Development Tax Credit under this chapter for taxable years ending after December 31, 2005.

(b) The termination date in Section 41(h) of the Internal Revenue Code does not apply to a taxpayer who is eligible for the Research and Development Tax Credit under this chapter for the taxable year in which the Delaware qualified research and development expenses are taken into account for purposes of Delaware income taxation.

§ 2074. Transitional rule.

For the purpose of calculating Delaware qualified research and development expenses used in calculating the Delaware base amount for taxable years ending after December 31, 1995 and before January 1, 2000, if the taxpayer has taken into account for purposes of Delaware income taxation qualified research and development expenses both inside and outside this State and is unable to determine the amount of Delaware qualified research and development expenses, the taxpayer may file a request with the Director to calculate Delaware qualified research and development expenses by multiplying qualified research and development expenses in all states by the average of the payroll and property factors calculated in accordance with Section 1903 of this title for the corresponding taxable years in question. The request shall set forth reasonable cause for the taxpayer’s inability to make such determination and may use the calculation specified in this section only upon approval of the Director.

§ 2075. Limitation on credits.

(a) The total amount of credits approved by the Director with respect to all taxpayers shall not exceed five million dollars ($5,000,000) in any State of Delaware fiscal year.

(b) If the total amount of Research and Development Tax Credits for which all taxpayers applied in any year exceeds the amount allocated for those credits, then the research and Development Tax Credit to be received by each applicant shall be the product of $5 million multiplied by a fraction, the numerator of which is the eligible Research and Development Tax Credit applied for by the applicant and the denominator is the total of all eligible Research and Development Tax Credits applied for by all applicants.”.

Section 5. Amend § 2024, Title 30 of the Delaware Code, by striking the phrase “or § 2041” as it appears in said section and substituting in lieu thereof the phrase “§ 2041, or § 2070”.

Section 6. Amend § 2023, Title 30 of the Delaware Code, by striking the phrase “or § 2041” as it appears in said section and substituting in lieu thereof the phrase “§ 2041 or § 2070”.

Section 7. This Act shall be effective for Research and Development expenses allowed in accordance with Section 41 of the Internal Revenue Code with regard to tax periods after December 31, 1999 and before January 1, 2006.

Approved May 03,1999