DOVER – The House passed legislation Thursday that would immediately address a projected $400 million budget shortfall caused by recent federal tax code changes under the “One Big Beautiful Bill Act” (OBBBA).
Sponsored by Rep. Kerri Evelyn Harris and Sen. Bryan Townsend, House Bill 255 would decouple Delaware’s tax code from certain provisions of the federal Internal Revenue Code (IRC) and reverse the automatic adoption of costly corporate giveaways that would drain hundreds of millions from the state’s budget over the next three years.
“Every day, Delawareans are struggling to pay for housing, fill their gas tanks, afford a doctor’s visit, or buy their prescriptions. Instead of focusing on those real challenges, Washington Republicans passed a tax plan that gives more to the wealthy and big corporations while working people are left footing the bill,” said Rep. Kerri Evelyn Harris
“We can – and do – absolutely support the many businesses and business owners who call Delaware home, but we have to do so in a responsible way, not by destabilizing our budget and giving away millions of tax dollars that have already been allocated to support schools, public safety, and services that our communities rely on. Temporarily decoupling is the right thing to do and I appreciate my colleagues for taking this step today to protect our state.”
Delaware is a rolling conformity state, meaning our tax code automatically incorporates most changes to federal tax law unless the state specifically “decouples” from them.
In July, Congress passed the OBBBA, which made significant changes to the federal tax code, including the timing of when businesses can deduct certain expenses. Under the new law, companies can immediately write off the full cost of research, experimental activities, and certain property investments, rather than spreading those deductions over multiple years as was previously required.
These changes, some of which are retroactive for businesses beginning in tax year 2022 and for all taxpayers in 2025, would result in a major loss of state revenue. Without legislative action, the state stands to lose $222.8 million in fiscal year 2026, $107.4 million in fiscal year 2027, and $79.9 million in fiscal year 2028.
HB 255 would protect Delaware from this revenue loss and preserve the state’s financial stability by temporarily decoupling from these provisions.
Importantly, HB 255 does not eliminate depreciation or business expensing. Businesses can still claim these deductions, but the bill adjusts the timing so they are spread out over multiple years, as was the case before the OBBBA, rather than allowing corporations to take a massive, immediate tax break.
Delaware’s approach aligns with what many other states have already done. Over the past 25 years, most states have selectively decoupled from certain federal tax provisions to protect their budget. For example, 28 states had decoupled from bonus depreciation even before the OBBBA was enacted.
Additionally, HB 255 does not impact small business expensing, meaning that small businesses can still immediately deduct up to $2.5 million in qualifying equipment and property purchases each year.
An amendment passed with the bill would require the Department of Finance to report to the Delaware Economic and Financial Advisory Council (DEFAC) in December 2027 on the bill’s revenue impact, federal law updates, and recommendations for future tax policy.
HB 255 now heads to the Senate for consideration.
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