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Delaware NOL limitation policy violates state Uniformity Clause

January 2021


The Delaware Superior Court (Court) has found that the state’s Division of Revenue’s (Division) policy limiting a corporate income taxpayer’s NOL deduction to the amount of its federal consolidated group’s NOL violated the Delaware Constitution’s Uniformity Clause. A ‘reasonableness’ standard generally applies to cure Uniformity Clause violations; however, the Court concluded that such an exception does not apply to administrative policies. 

Although the Court found the policy was consistent with Delaware statutory law and did not violate the US Constitution’s Commerce Clause, the policy was struck down due to its Uniformity Clause violation.

The takeaway

To the extent taxpayers previously have been assessed tax based on the Division’s NOL limitation policy, or filed original returns based on the Division’s policy, a refund claim may be available. Refund claims must be made by the later of three years from the last date prescribed for filing the return or two years from the time that the tax was paid.

The Division may file an appeal to the Delaware Supreme Court within 30 days after the Superior Court enters the order on the docket.

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Peter Michalowski

National SALT Practice Leader, PwC US

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