On St. Patrick’s Day, Gov. Alan Markell signed the Delaware Commitment to Innovation Act into law. The legislation is designed to encourage employers to locate or retain their headquarters in the state, and to promote research and development there, and follows the announcement that Michigan-based Dow Chemical Co. and Delaware-headquartered DuPont Co. would combine to form DowDuPont. After the merger, they plan to separate into three independent, publicly traded businesses, two of which are to be based in Wilmington.
As we explained when officials announced the merger in February, lawmakers promised to modify Delaware’s tax code in three key ways as part of their effort to maintain as much of DowDuPont’s presence as possible:
- Modifying the state’s research and development tax credit to remove the yearly $5 million expenditure caps and make the credit refundable
- Reintroducing a modernized version of Delaware’s “New Economy Jobs Tax Credit,” intended to attract corporate headquarters jobs to Delaware
- Implementing a Strategic Fund grant, which would offer matching funds capital expenditure assistance. As it relates to DowDuPont, the fund would help upgrade research facilities in Delaware, contingent upon spending at least $200 million in the state over the five-year time frame
The act makes good on these commitments. According to a governor’s office press release, Delaware is now only one of three states with a research & development (R&D) credit that is both refundable and that has no cap.
The most current fiscal note reveals that the impact for fiscal year 2017 is zero dollars. For fiscal year 2018, the impact is expected to be a loss of $3.5 million (R&D only), and for fiscal year 2019, the anticipated revenue loss is $10.6 million (R&D + New Economy Jobs Tax Credit). A previous version of the fiscal note calculated one-time costs in fiscal year 2017, 2018, and 2019 to be $8.2 million, $17.6 million, and $22.9 million, respectively.
Not surprisingly, many lawmakers and business leaders are ecstatic. Below are some quotes contained in the governor’s press release:
These reforms save jobs today and are going to create jobs in the future. Not only are they vital to ensuring we keep the headquarters of the planned agriculture spinoff, but they also support continued growth of innovative businesses of all sizes and well-paying jobs throughout the state. These changes will reinforce our distinction as one of the states best prepared to thrive in the New Economy.
Senate President Pro Tempore Patricia Blevins:
Delaware families will be the end beneficiaries of these changes. When we create more jobs, strengthen our economy and reward innovation, we all win. This package checks all those boxes, and is another example of the positive impact we can have when legislators work together to improve our State.
House Speaker Pete Schwartzkopf:
While the situation with DuPont created an urgency to make these changes, modernizing our R&D credit will have a much bigger benefit than just preserving DuPont in Delaware. This will encourage businesses that are in the early stages of development to invest and locate here. By becoming one of only a few states in the country with this system, and given our location along the East Coast, we can become a major hub for research and development. Delawareans ask all the time what we are going to do to help create more jobs here, and this bill helps to answer that question.
Bob Perkins, Executive Director of the Delaware Business Roundtable:
These changes are an investment in our economy and set Delaware on a more positive pathway to robust economic growth and job creation. The Roundtable applauds the legislators who are advancing these changes, and we look forward to working to help the bill become law.
Rich Heffron, President of the State Chamber of Commerce:
Research and Development continues to be a large investment and job creator for companies, and is important for Delaware’s economic growth moving forward. This is exactly the sort of thing the legislature ought to be doing to help create jobs here, and the Delaware State Chamber of Commerce fully supports this. If I am a business owner in this state or outside of it, I am standing up and taking note of the fact that there are some really positive things happening in Delaware.
The Senate voted to approve the act unanimously, and the House passed it with a 34-3 vote.