A proposal to raise the annual fee for limited liability companies in Delaware has not yet gained traction as work gets under way on eliminating a $382 million budget shortfall.
Rep. John Kowalko, D-Newark, introduced the bill in March. He later amended the legislation to raise the current fee from $325 a year to $350. No action has been taken on the legislation.
Limited liability companies (LLCs) are used by all types of businesses as a way to reduce potential liabilities that would be covered by the state in which the entity is incorporated.
The levy is a big revenue source in Delaware, generating more than a quarter of a billion dollars a year for tax coffers. In addition, companies like Wilmington-based CSC set up LLCs for a fee separate from the annual tax.
Kowalko’s measure has been touted as a way to eliminate tens of millions in spending cuts in education in the current budget proposal.
Kowalko has also proposed adding personal income tax brackets as a way to raise additional revenue by adding a top bracket for top wage earners and providing a slightly lower rate to middle-income families.
Delaware has a high personal income tax rate, with taxpayers making about $60,000 paying the top rate of 6.6 percent. That rate is offset by no sales tax and lower property taxes.
Critics argue that a high top bracket will simply result in more wealthy Delaware residents moving to states, like Florida, that have low or no state income taxes.
A similar argument was made in repealing the estate tax in the state. The House approved the measure and an increase in taxes for the largest businesses in the state, over the objections of legislators that included Kowalko.
In the case of the LLC tax, Delaware faces competition from states like Nevada and South Dakota that have been working to take away incorporation business from Delaware. It is possible that a tax increase could backfire and end up actually reducing revenues.
