Committee Spotlight: Tax & Finance

BY TYLER MICIK

Our Tax and Finance Committee met in late August and was joined by Representative Paul Baumbach who chairs the House Revenue & Finance Committee. He provided insight and answers on some of the key tax policies, which the committee voted on this past year, and touched on several bills. Of note were HB 128, which would create new tax brackets for taxable years after December 31, 2023, and HB 168, which requires short-term rental agencies to pay the same short-term rental tax paid by all hotels, motels, and tourist homes in Delaware. Neither bill passed this session, and both will be carried over to next year.

The group also reviewed Delaware’s personal income tax withholding requirements for nonresident employees under the “convenience of the employer rule” and the Division of Revenue’s NOL limitation policy following the Delaware Supreme Court’s decision in Director of Revenue v. Verisign, Inc., Del. Sup. Ct., C.A. No. N19C-08-093 (11/29/21).

Delaware is among a small number of states that defines source income for nonresident employees as including compensation for services that are “attributable to employment in this State and not required to be performed elsewhere.” For nonresidents that work remotely for Delaware employers, this rule requires withholding Delaware personal income tax on their wages unless their work is required to be performed outside of Delaware by the employer, not just permitted for the convenience of the employee. A non-resident’s home state generally allows workers to claim some credit on their personal income tax returns for taxes paid to another state. However, New Jersey recently passed a law that could eliminate this credit, which could be burdensome for employees that work remotely for a Delaware employer but live in New Jersey.

The committee will continue to discuss and work with Rep. Baumbach on these issues. If your company is interested in participating on the committee, please contact me at tmicik@dscc.com.