- Associated Press - Friday, May 1, 2015

NEW CASTLE, Del. (AP) - A panel exploring how to make Delaware’s revenue portfolio less unpredictable and more reflective of economic conditions is eyeing several recommendations, including eliminating itemized deductions and replacing the estate tax with an increase in the personal income tax.

The panel, created in January by an executive order from Gov. Jack Markell, was formed amid concerns that more than half of Delaware’s revenues come from “inelastic” sources that do not respond to changes in Delaware’s economy. Those revenue sources include the lottery and gambling, abandoned property, and bank and corporate franchise taxes.

The committee, which met Friday to discuss a draft report, has taken a close look in recent weeks at the state’s various revenue sources.

A key recommendation of the panel is broadening the personal income tax base, the state’s largest revenue source, by eliminating itemized deductions and reducing tax breaks for senior citizens, while scaling back the rates.

The panel also says Delaware, the legal home for more than 1 million business entities, including more than half of all publicly traded companies in the United States, should maintain its business friendly focus and try to grow that market share, which makes the corporate franchise tax and related business fees the state’s second-largest revenue source.

Meanwhile, the committee says Delaware’s corporate income tax system is relatively antiquated and out of favor compared to how other states apportion the profits of multistate firms, and that officials should look at reducing the corporate income tax rate. The draft report also says volatility in corporate income taxes can be reduced by evening out the distribution of quarterly estimated payments on profits. Currently, the state requires 70 percent of estimated payments in the first half of the calendar year, which can cause state budget problems at the end of the fiscal year if a company doesn’t meet its annual profit estimates.

The panel also recommended increasing the gross receipts tax on businesses, often described as Delaware’s “hidden sales tax,” to offset reduced reliance on corporate income taxes. But committee members shied away from recommending the imposition of a general statewide sales tax.

The committee’s final report was due this week, but panel members agreed Friday to give themselves more time to put the finishing touches on the draft document. While there appears to be no substantive disagreements about the draft report, panel members agreed to give a subgroup until next Wednesday to make revisions. The committee will then meet again on May 11 for final approval of the report.

The work of the subgroup, led by state treasurer Ken Simpler, will include incorporating revisions or additions he has suggested, including language adding context about the committee’s work and the state’s revenue system.

“I don’t think there’s anything in Ken’s draft that anybody would disagree with,” said former secretary of state Glenn Kenton. “He hasn’t done any damage to the consensus.”

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