Del. House Democrats approve tax increases

DOVER, Del. (AP) -- Delaware House Democrats narrowly approved a package of tax increases Thursday that Gov. Jack Markell is relying on to help pay for his proposed spending plan for next fiscal year.

The legislation, approved on a 26-13 straight party line vote, increases the annual tax on limited liability companies and business partnerships from $250 to $300. It also increases the minimum annual corporation franchise tax by $100.

No Republicans voted for the bill, which received just one more vote than the required three-fifth majority. House leaders twice postponed the vote in recent days because of the absence of Democratic lawmakers.

Under state law, tax and fee bills require three-fifths majorities in both the House and Senate, while bills revising the state's general corporation laws require two-thirds majorities.

House Republicans unsuccessfully pushed for a two-thirds vote requirement for business tax bills, arguing that they altered corporation law by changing the financial obligations of corporations and other business entities.

"If it doesn't pass with two-thirds, then we have the potential of lawsuits," said Ron Smith, an attorney for House Republicans.

But Andrew Lippstone, Markell's chief counsel, argued that the legislation did not require a two-thirds majority, which it failed to obtain.

"It's a revenue bill," he said, adding that anyone trying to challenge the vote in court if the legislation becomes law would have "a very tough case."

Administration officials say the tax increases should generate an additional $51 million next year.

Secretary of State Jeffrey Bullock, whose department includes the Division of Corporations, said the tax and fee increases would be effective this year if approved by the Senate. Businesses would see the increases reflected in payments for this year that are due next spring.

Republicans tried unsuccessfully to amend the bill to have the tax and fee increases expire after three years, noting that many small business owners already are struggling with higher workers compensation and unemployment tax obligations.

"I see business people every day ... and they're concerned about the fact that this is one more tax, one more fee, they have to pay," said Minority Leader Danny Short, R-Seaford.

Administration officials say the vast majority of tax and fee increases, more than 90 percent, will be paid by business entities not located in Delaware, which is the legal home for more than 1 million business entities, including more than half of all publicly traded companies in the United States.

But a rough estimate by the administration indicates that some 40,000 entities doing business in Delaware could be affected by the legislation, Bullock said.