Delaware PL 86-272 activities may remove office exemption

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September 2017

Overview

A taxpayer incorporated in Delaware and conducting activities in the state that are protected by Public Law 86-272 may not receive the benefit of the Delaware statutory office exemption.  Public Law 86-272 does not apply to corporations incorporated in the state.

The takeaway

A taxpayer incorporated in Delaware currently availing itself of the statutory office exemption from Delaware CIT should evaluate its level of Delaware activity.  Where such taxpayer has any level of activity in Delaware, including activity protected by Public Law 86-272, the taxpayer should reevaluate its eligibility for the statutory office exemption and ensure it is meeting its Delaware CIT filing obligations.  In particular, a taxpayer that files returns for Delaware Gross Receipts Tax purposes should be mindful that the Delaware Division of Revenue has been comparing taxpayers’ Gross Receipts Tax filings and CIT filings to target taxpayers with Delaware activities that are claiming Public Law 86-272 protection for CIT purposes.

Where a taxpayer incorporated in Delaware determines that it has business activity in Delaware and has not filed CIT returns, or filed CIT returns under the protection of the statutory office exemption or Public Law 86-272, consideration should be given to remediating exposure by entering into a voluntary disclosure agreement, which may limit the lookback period and potentially reduce penalties.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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