Income, Inheritance and Estate Taxes
CHAPTER 16. Pass-Through Entities, Estates and Trusts
Subchapter II. Taxation of Pass-Through Entities and Their Members
(a) Income tax. — A pass-through entity as such shall not be subject to the income tax imposed by Chapter 11 or Chapter 19 of this title. Members of a pass-through entity shall be liable for the tax imposed by Chapter 11 or Chapter 19 of this title only in their separate or individual capacities.
(b) Incidence of business license and excise taxes. — The incidence of the taxes imposed by Parts III through VI of this title and by Title 4 with respect to the activities of a pass-through entity engaged in business in this State shall fall upon the pass-through entity and not its members.72 Del. Laws, c. 467, § 1;
Each item of the income, gain, loss or deduction of a pass-through entity shall have the same character for a member of such pass-through entity under this title as it has for federal income tax purposes. Where federal income tax rules and principles are not determinative of the character or of the source of an item of income, gain, loss or deduction for purposes of this title, such item shall have the same character or source for a member of the pass-through entity as if the item were realized directly by such member from the source from which realized by the pass-through entity or incurred in the same manner as incurred by the pass-through entity. A member’s distributive share of any item of the income, gain, loss or deduction of a pass-through entity shall, solely for purposes of the immediately preceding sentence, be determined by application of the principles of § 704(b) of the Internal Revenue Code [26 U.S.C. § 704(b)], including, without limitation, the principles for determining whether an allocation of such item among the members of such pass-through entity has substantial economic effect.72 Del. Laws, c. 467, § 1;
(a) Nonresident individual members of pass-through entities. — In determining the tax liability under Chapter 11 of this title of a nonresident individual member of a pass-through entity, there shall be included in such member’s modified Delaware source income such member’s distributive share of the items of income, gain, loss and deduction of such pass-through entity entering into such member’s federal adjusted gross income, as modified by § 1106 of this title, as is derived from sources within this State as determined by the application of § 1124 of this title to such member in the same manner as if such items had been realized directly by such member.
(b) Nonresident individual members’ modifications. — Any modification described in subsection § 1106(a), (b) or (c) of this title which relates to an item of pass-through entity income, gain, loss or deduction shall be made in accordance with a nonresident individual member’s distributive share, for federal income tax purposes, of the item to which the modification relates, but limited to that portion of such item as is derived from or connected with sources in this State.
(c) Corporate members of pass-through entities. — A corporation that is a member of a pass-through entity doing business or having real or tangible personal property in this State shall be subject to the provisions of Chapter 19 of this title; provided, however, that this subsection shall not be interpreted as precluding a corporation that is a member of a pass-through entity from qualifying for exemption from taxation under Chapter 19 pursuant to § 1902(b)(8) of this title.
(d) Allocation and apportionment of income. — In determining the tax liability under Chapter 19 of this title of a corporation that is a member of a pass-through entity doing business or having real or tangible personal property in this State:
Such corporation’s federal taxable income shall be increased or decreased, as the case may be, by its distributive share of such pass-through entity’s items, if any, described in § 1903(a) of this title;
Such corporation’s distributive share of any item of such pass-through entity that is described in any of § 1903(b)(1) through (5) of this title shall be included in the entire net income of such corporation only if such item is properly allocable to this State under such § 1903(b) of this title; and
In applying § 1903(b)(6) of this title to such corporation,
(1) The entire business of such corporation shall not be treated as having been transacted or conducted within this State if any part of the business of such pass-through entity was transacted or conducted outside this State; and
(2) The 3 ratios described in such § 1903(b)(6) of this title of such corporation shall be determined by including in each such ratio such corporation’s distributive share of each relevant item of such pass-through entity.
In applying § 1903(b)(7) of this title to such corporation, the ratio described in such § 1903(b)(7) of this title of such corporation shall be determined by including in such ratio the corporation’s distributive share of each relevant item of such pass-through entity.72 Del. Laws, c. 467, § 1; 76 Del. Laws, c. 234, § 3;
(a) In general. — The credits allowed by Chapters 18 and 20 of this title against the taxes imposed by Chapters 11 and 19 of this title on account of activities and investments of a pass-through entity shall be passed through to its members in proportion to their respective distributive shares of such entity’s taxable income on the last day of such entity’s taxable year.
(b) Qualifications for credits. — The qualification of a pass-through entity for any credit allowed by Chapter 18 or Chapter 20 of this title shall be determined by treating such entity as the taxpayer for purposes of Chapter 18 or Chapter 20, as the case may be.
(c) Limitations on credits. — In the case of any credit allowed to a pass-through entity by Chapter 18 or Chapter 20 of this title, the limitations imposed by Chapter 18 or Chapter 20, as the case may be, shall be applied:
(1) At the level of the pass-through entity in the case of a limitation based on:
a. The value of property contributed or money invested,
b. The total allowable credit per taxpayer per year, or
c. The number of persons employed; and
(2) At the level of each member of the pass-through entity in the case of a limitation on the total amount of tax against which such credit may be applied.
(d) Multiple pass-through entities. — Whenever 2 or more pass-through entities together undertake any qualified activity at the same qualified facility as those terms are used in subchapter II or subchapter III of Chapter 20 of this title, and such combination of pass-through entities is not itself a pass-through entity under this chapter, the qualified employees, qualified investment and number of Delaware resident employees of such pass-through entities shall be aggregated to determine eligibility for, and computation of, credits or reductions of tax under those subchapters. Participation of the pass-through entities in the aggregate credits shall be determined by the share of each pass-through entity based upon the following:
(1) In the case of credits calculated with respect to an increase in qualified employees, upon the ratio of new qualified employees in such pass-through entity to all new qualified employees in all the pass-through entities comprising the aggregate, such ratio not to exceed 1 or be less than zero; and
(2) In the case of credits calculated with respect to the amount of a qualified investment, upon the ratio of qualified investment in such pass-through entity to all qualified investment in all the pass-through entities comprising the aggregate. In order to claim credits resulting from such aggregation under this subsection, the entities must first file a “Request for Aggregation” with the Director and obtain the Director’s approval to aggregate. The Request shall identify the entities to be aggregated, the qualified activity to be engaged in, the location of the qualified facility, the amount of qualified investment, the number of qualified employees, the proposed participation of each pass-through entity in credits determined under this subsection, and other information required by the Director to determine the aggregated entity and its eligibility for credits.72 Del. Laws, c. 467, § 2;
(a) Definitions. —
As used in this section:
(1) “Qualified business” means a pass-through entity operating a marijuana establishment pursuant to Chapter 13 of Title 4 or Chapter 49A of Title 16.
(2) “Qualified expenses” mean the ordinary and necessary business expenses paid or incurred for the taxable year in carrying on a qualified business, which are disallowed as a deduction for federal purposes pursuant to § 280E of the Internal Revenue Code [26 U.S.C. § 280E].
(b) Deduction. —
A pass-through entity operating a qualified business may deduct its qualified expenses in computing its total income.84 Del. Laws, c. 24, § 6;