A bill to increase a host of fees imposed on businesses incorporated in Delaware, collectively raising more than $150 million in new annual income for the state, cleared the House Administration Committee this week.
Sponsored by House Democratic Leader Kerri Evelyn Harris (D-Dover East) and Senate Democratic Leader Bryan Townsend (D-Newark, Bear), House Bill 400 would raise annual fees paid by Limited Liability Corporations and other “Alternative Entities,” as well as the fees associated with various services provided by the Division of Corporations.
In an earlier statement justifying the proposal, Rep. Evelyn-Harris said the state is running short of funds and needs the money. “That means reviewing every revenue source and expenditure in our state with a fine-toothed comb, and making changes where they make sense and where they won’t hurt our residents and the businesses.”
The State of Delaware gets more than a third of its annual revenue from income tied to its top national position as a business-friendly incorporation venue. The strength of the Court of Chancery, which adjudicates business lawsuits, has also been a draw for corporations to establish their legal residence here.
Committee member, State House Republican Leader Tim Dukes (R-Laurel), questioned the wisdom of imposing higher fees on corporations, noting the state’s slipping standing in the business community and the rising threat posed by Texas and Nevada, which are actively trying to unseat Delaware as the premier incorporation destination.
Despite the objections, HB 400 was released from committee on a 3-2 vote along party lines.
The day before Wednesday’s committee action, Newsmax posted an article lending credence to Rep. Dukes’s concerns:
“A tsunami of corporate departures continues to hit Delaware as more than 60 public companies with a combined market cap of over $3 trillion have quit the state in the past two years alone. In just the past week, two significant public companies — FirstCash Holdings and GPGI Inc. — have announced plans to leave Delaware, underscoring what many analysts now describe as a corporate exodus.
FirstCash Holdings (NASDAQ: FCFS), a $9 billion market cap company, filed plans with shareholders to reincorporate in Texas. The move, the company said, is driven by a desire for ‘more clarity and predictability’ in legal matters, along with efforts to reduce ‘opportunistic and frivolous litigation.'”
To many observers, the article accurately illustrated the problem of “DExit,” the term coined for the recent corporate flight from Delaware.
While there are about 2.3 million businesses incorporated in Delaware, the lion’s share of the state’s revenue comes from a comparatively small number of high-value companies, like those that have recently chosen to incorporate in competing states.
A significant reduction in Delaware’s corporate revenue stream, valued at $2.5 billion to $3 billion annually, would affect everyone, as elected officials would face a no-win dilemma: cut services to reduce spending or raise other taxes and fees to cover the lost income.
