The latest news and updates on Delaware state and local tax

October 14, 2022

U.S. Supreme Court Hears First Unclaimed Property Case in 30 Years

Authored by: Brandon Vance and Bonnie Susmano, JD, MBA

On October 3, 2022, the U.S. Supreme Court heard its first challenge to an unclaimed property law in 30 years, six years after agreeing to listen to the challenge in the Court’s original jurisdiction. MoneyGram is a money transfer services company incorporated in Delaware. The Company maintains large balances of the money order and official checks while it waits to distribute them to the owner of the money order or check. Some money orders and checks will not be claimed within a reasonable time frame and are thus deemed uncashed instruments that are escheatable to the respective state.

Generally, unclaimed property is escheated to the state of incorporation of the holder of the liability when the address is unknown. However, not all unclaimed property follows the same rules. Money Orders follow the Disposition Act, which makes money orders escheatable to the state in which the instrument was purchased. MoneyGram believed the Disposition Act covered money orders and escheated to Delaware, its State of Incorporation because MoneyGram did not collect the address from the institutions that sold them the instruments. At issue was whether MoneyGram’s official checks are treated as money orders covered under the Disposition Act or financial instruments covered under a set of priority rules. The Supreme Court will opine whether MoneyGram was correctly escheating their official checks to Delaware. A decision is expected by June 2023. However, there is no doubt that the Supreme Court’s decision will significantly impact the treatment of financial instruments for unclaimed property purposes.

June 3, 2022

Delaware May Impose Audits for Unclaimed Property Holders

On May 4, 2022, Delaware proposed Senate Bill 281, which would allow the Department of Finance (DOF) to audit unclaimed property holders without providing any prior notice about their unclaimed property obligations and the ability to participate in a Voluntary Disclosure Agreement. Currently, the DOF may not initiate an audit until the holders are notified of the opportunity to participate in a Secretary of State (SOS) Voluntary Disclosure Agreement (VDA). The major change in this bill allows the DOF to initiate an audit immediately and without providing any notice of the consequences for failing to comply with unclaimed property filing obligations.

Significance for Unclaimed Property Holders:

Unclaimed property VDAs offer several benefits such as penalty abatement, self-managed assessments, and the ability to work in a less adversarial manner with the Department to reach a reasonable conclusion. Taxpayers that heed the notice may pay substantially less by taking advantage of the VDA program benefits.Now the Department may be able to initiate an audit without providing notification of the VDA – meaning taxpayers will need to be strictly proactive in complying with their unclaimed property obligations and requesting VDAs when appropriate.

February 8, 2022

Delaware DOR Releases Guidance for the Treatment of Wages for Remote Work in 2021

The Delaware Division of Revenue released guidance concerning the tax treatment of wages for those days worked outside Delaware in 2021. Delaware has traditionally imposed an “office of convenience” rule that looks at whether a Delaware nonresident employee assigned to a Delaware work location is working outside of the state for their own convenience or their employer’s necessity. Wages earned for days worked outside the state for the nonresident employee’s convenience are deemed derived from Delaware sources. Despite this longstanding position, taxpayers may report days working outside Delaware as non-Delaware workdays on Schedule W of their 2021 income tax return if either:

  1. The taxpayer’s employer indicated that the employee must work from home and required that all employees were not allowed to work at the Delaware location as a result of COVID-19 work restrictions and/or policies, or
  2. The employer strongly encouraged remote work and required an employee to seek advance permission to return to the office in person due to COVID-19 work restrictions and/or policies.

Unlike other states, Delaware has recognized that COVID-19 Emergency Orders required employees to work remotely. As such, the Department has conceded that these remote workdays were done for the employer’s necessity and not the employee’s convenience.

As these COVID-19 work restrictions lapse and employees are permitted (or required) to return to work locations in Delaware, employees may no longer report days worked from home as days outside of the office on Schedule W. The Division may require written documentation, upon discretion, from employers regarding whether employees were working remotely for the employer’s necessity or the employee’s convenience.

December 9, 2021

Delaware – Supreme Court Invalidates Division’s NOL Limitation Policy

On November 29, 2021, the Delaware Supreme Court determined inDirector of Revenue v. Verisignthat the Division of Revenue’s limiting a corporate taxpayer’s Delaware net operating loss to the amount on its federal consolidated return violated the state’s Uniformity Clause. While this is a favorable outcome for taxpayers, this Judicial change in the Delaware law does not provide an effective date for when this ruling takes effect. Therefore, it’s unclear which tax years the law will apply. Note, however, that taxpayers who had been assessed tax previously, according to the Division’s NOL limitation policy, should consider filing refund claims to the extent that Delaware tax years remain open (generally three years from the due date of the return or two years from the assessment of additional tax).

Contact a Withum State and Local Tax professional with any questions about how your business may benefit from the Delaware Supreme Court’sVerisigndecision.

August 20, 2021

Delaware’s Limitations to Corporate Taxpayer’s NOLs

On July 31, 2021, the governor signed H.B. 171 bringing Delaware into conformity with the Federal NOL limitation which limits the net operating loss deductions that a corporate taxpayer may claim on their Delaware tax return. Under this law, a corporate taxpayer may claim a net operating loss deduction up to the amount claimed on their federal income tax return. Similarly, Delaware applies the Internal Revenue Code’s 80% of taxable income limit for tax years beginning after tax year 2020. Any excess net operating loss will be disallowed and will not be permitted to be used in the calculation of their Delaware corporate income tax. However, Delaware allows for unlimited carryforward of the disallowed NOL.

August 13, 2021

Delaware Law Clarifies Income Tax Withholding Obligations for Nonresident Sellers

Delaware law requires withholding of the estimated tax due on the gain recognized from the sale of real estate if the seller is a nonresident individual, and the tax return must be submitted with recording of the deed. Effective July 30, 202, HB 171 requires such withholding from the net sale proceeds, and to the extent sale proceeds are not available, the recorder of deeds may accept a deed without payment of the tax if the closing attorney confirms that no funds are available for payment and that no funds were distributed to the seller.

March 23, 2021

Delaware Update on Extension of Filing Deadline

The Delaware Division of Revenue (Division) will grant filing and payment extensions similar to those granted by the IRS in IR 2021-59. Delaware personal income tax returns, including composite returns, that would be due on April 30, 2021 will now be due on May 17, 2021. If a taxpayer needs additional time beyond the extended due date to file a return, taxpayers may request an extension for additional time to file through the Division’s online system, https://dorweb.revenue.delaware.gov/scripts/olp/olp.dll/pitext , which will provide an automatic extension of time to file to October 15, 2021. To submit a request for extension on paper, taxpayers should use Form 1027, available at https://revenuefiles.delaware.gov/2019/TY20_200EXe.pdf . The Division cautions taxpayers that the payment deadline of May 17, 2021 cannot be further extended and penalties and interest on underpayments will be calculated from that date, even if a taxpayer requests additional time to file. The Division also caution taxpayers that the extension does not extend to estimated payments for the 2021 tax year which remain due on April 30, 2021 and cannot be extended. (Delaware Technical Information Memorandum No. 2021-3, 03/18/2021.)

April 13, 2020

Delaware Issues Technical Information Memorandum

The Delaware Department of Revenue (“DOR”) issued a Technical Information Memorandum in an effort to provide relief to all effected taxpayers. The provisions are as follows:

  1. Corporate tentative returns that would be due on April 15, 2020 pursuant to 30 Del. C. § 1904(a) will now be due on July 15, 2020.
  2. Personal income tax returns that would be due on April 30, 2020 will now be due on July 15, 2020. If a taxpayer needs additional time beyond the extended due date, taxpayers may request an extension requesting additional time to file through Revenue’s online system. This will provide an automatic extension of time to file to October 15, 2020. This requires the submission of Form 1027, available on the Division of Revenue website.
  3. Estimated personal income tax payments that are due on April 30, 2020 are extended to July 15, 2020. Please note that the second quarter payments remain due on June 15, 2020.
  4. Fiduciary income tax returns that are due on April 30, 2020 will now be due on July 15, 2020. If a taxpayer needs additional time beyond the extended due date, the Division of Revenue reminds all taxpayers that they may file an extension requesting additional time to file. This will provide an automatic extension of time to file to October 15, 2020. This requires the submission of Form 400-EX, available on the Division of Revenue website.

Any extension forms that would otherwise be submitted on paper may be submitted electronically to DOR at [email protected]. Please note an extension only extends the due date for filing, not for payment. The payment deadline will be July 15, 2020 and penalties and interest on underpayments will be calculated from that date, even if a taxpayer requests an additional extension of time to file.

In addition, throughout the COVID-19 Emergency, DOR continues to work with taxpayers who owe outstanding balances. [Source: https://revenuefiles.delaware.gov/2020/TIM2020-01_COVID-19_filing_extension.pdf]

March 2020

Delaware Declares State of Emergency but State Offices Remain Open

Delaware has declared a state of emergency to prepare for the spread of coronavirus but all state offices currently remain open and the Department of Revenue will assist taxpayers with their tax filings. All taxpayers are encouraged to use the Division of Revenue’s online services at Revenue.Delaware.gov to ensure that they stay compliant with all tax filing and payment obligations. If taxpayers have questions or need assistance with Revenue’s online services, taxpayers can call the public service group at 302-577-8200.

All returns and payments filed with the Division of Revenue will be processed as they are received. Online filing for most returns is available at https://revenue.delaware.gov/file/. All returns received through electronic and internet filing methods are processed directly into Revenue’s system to allow expedient processing. Paper returns are processed as they are received and will be scanned into Revenue’s system for processing, but please be mindful that paper returns will take longer to be processed.

Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.

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