(a) Any banking organization or trust company required to pay a franchise tax pursuant to § 1101 of this title may annually elect, on its original return or on an amended return filed within 180 days of the due date of its original return, to pay an “alternative franchise tax” pursuant to this section, in lieu of payment of the tax on taxable income provided for by § 1101 of this title.
(b) “Alternative franchise tax” shall be the sum of bank income tax liability provided for in subsection (c) of this section below, plus the location benefit tax liability provided for in subsection (d) of this section below. Alternative franchise tax shall become due and payable pursuant to § 1104 of this title.
(c) Bank income tax liability. — A banking organization or trust company electing to pay the alternative franchise tax shall have a bank income tax liability based upon its elective income tax base, computed as follows:
(1) “Entire net income” shall be the net operating income before taxes of the banking organization or trust company, computed on a basis that consolidates with the income of such banking organization or trust company for the tax year involved, the income of all subsidiary corporations of such banking organization or trust company in accordance with generally accepted accounting principles; provided, however, that the income of subsidiary corporations of out-of-state banks that operate resulting branches in this State shall be consolidated with the income of such resulting branches only if such subsidiaries make the election provided for in paragraph (c)(5) of this section. “Net operating income before taxes” shall be computed in accordance with principles used by the Federal Financial Institutions Examination Council or other appropriate federal authority and reported to the Bank Commissioner pursuant to § 904 of this title, reduced by the following:
a. Net operating income before taxes as shown on the books of account of any non-United States branch office established:
1. Pursuant to § 771 of this title in the case of a state banking organization; or
2. Pursuant to federal law in the case of a national bank;
provided, that in either case at least 80% of the gross income of such non-United States branch office constitutes “income from sources without the United States” as defined under § 862(a) of the Internal Revenue Code of 1986 [26 U.S.C. § 862(a)], as amended, or any successor provisions thereto;
b. The gross income derived from international banking transactions (as defined in § 101 of this title) after subtracting there from any expenses or other deductions attributable thereto;
c. The gross income of an international banking facility (as defined in § 101 of this title) less any expenses or other deductions attributable thereto;
d. Without limitation of the foregoing, any income earned from business activities conducted outside the United States;
e. The interest income from obligations of volunteer fire companies;
f. Any examination fee paid to the Office of the State Bank Commissioner pursuant to § 127(a) of this title; and
g. Income derived from acting as an insurer pursuant to § 761(a)(14) of this title or § 1661(a)(14) of this title or from acting as an insurer pursuant to Title 18.
(2) Any subsidiary corporation of an electing banking organization or trust company which subsidiary is not itself a banking organization or trust company may elect, in such manner as the State Bank Commissioner shall prescribe, to be taxed in accordance with Chapter 19 of Title 30. If such election is made, such electing corporation shall not be considered a “subsidiary corporation” for purposes of subsection (c) of this section. Such election shall not be available to any corporation which is described in § 1901(2) or § 1902(b)(8) of Title 30 or any corporation engaged in the sale, distribution or underwriting of, or dealing in, securities.
(3) Any corporation, other than a subsidiary engaged in activities authorized under § 761(a)(14) of this title or § 1661(a)(14) of this title (relating to acting as an insurer and transacting the business of insurance), 80% of whose total combined voting power of all classes of stock entitled to vote is owned by an out-of-state bank that operates a resulting branch in this State or, directly or indirectly, by a bank holding company that also directly or indirectly owns all the stock of a Delaware chartered banking organization or trust company, a national bank located in this State or an out-of-state bank that operates a resulting branch in this State, may elect, in such manner as the State Bank Commissioner shall prescribe, to be treated as a “subsidiary corporation” of an electing banking organization or trust company. Such election shall not be effective unless the electing corporation, together with its “affiliates” as that term is defined in subchapter V of Chapter 7 of this title, employs by the end of its taxable year following the taxable year in which the election is made at least 200 persons within this State.
(4) For purposes of this section, an “Edge Act corporation” as defined in § 101(4)c. of this title which is not “engaged in banking” as defined at 12 C.F.R. § 211.2(f), or any subsidiary thereof, may elect to be taxed in accordance with Chapter 19 of Title 30 in lieu of this section.
(5) For purposes of this section, a resulting branch in this State of an out-of-state bank shall be treated as if it were a corporation. The Commissioner shall prescribe such rules and regulations as may be deemed necessary in order that the tax liability of any resulting branch in this State of an out-of-state bank may be returned, determined, computed, assessed, collected and adjusted, in such manner as to clearly reflect the tax liability and the various factors necessary for the determination of such liability, and in order to prevent avoidance of such tax liability.
(6) “Elective income tax base” shall mean the entire net income of a banking organization or trust company which is apportioned to the State of Delaware in accordance with the following provisions:
a. If the entire business of a banking organization or trust company (and each of its subsidiary corporations the income of which is included in entire net income) is transacted or conducted within this State, 100% of the entire net income shall be apportioned to this State. If the business of a banking organization or trust company (or any of its subsidiary corporations the income of which is included in entire net income) is transacted or conducted in part without this State, the elective income tax base shall be the result of multiplying entire net income by an apportionment percentage determined by adding the banking organization or trust company's property factor, payroll factor, and 2 times the receipts factor together and dividing the sum by 4. If 1 of the factors is missing, the remaining factors are added together and the sum is divided by the number of remaining factors. If 2 of the factors are missing, the remaining factor is the apportionment percentage. A factor is missing if both its numerator and denominator are zero, but a factor is not missing merely because its numerator is zero.
b. A banking organization or trust company's property factor, payroll factor and receipts factor shall be calculated using the combined property, payroll and receipts of the banking organization or trust company and each subsidiary corporation the income of which is included in entire net income.
c. A banking organization or trust company's property factor is a fraction, the numerator of which is the average of the values, at the beginning and end of the tax year (or as of such other dates approved by the Bank Commissioner), of all the real and tangible personal property, owned or rented, in this State by the taxpayer, and the denominator of which is the average of the values at the beginning and end of the tax year (or as of such other dates approved by the Bank Commissioner) of all such property of the taxpayer both within and without this State; provided, that any property which is not used in the taxpayer's business shall be disregarded. For the purposes of this paragraph, property owned by the taxpayer shall be valued at its original cost to the taxpayer, and property rented by the taxpayer shall be valued at eight times the annual rental.
d. A banking organization or trust company's payroll factor is a fraction, the numerator of which is wages, salaries and other compensation paid by the taxpayer to employees within this State during the tax year, and the denominator of which is wages, salaries and other compensation paid within and without this State during the tax year to all employees of the taxpayer. Wages, salaries and other compensation are paid to an employee within this State if:
1. The individual's service is performed entirely within this State;
2. The individual's service is performed within and without this State, but the service performed without this State is incidental to the individual's service within this State;
3. A portion of the service is performed within this State and the base of operations of the individual is in this State;
4. A portion of the service is performed within this State and, if there is no base of operations, the place from which the individual's service is directed or controlled is in this State;
5. A portion of the service is performed within this State and neither the base of operations of the individual nor the place from which the service is directed or controlled is in any state in which some part of the service is performed, but the individual's residence is in this State; or
6. The individual is neither a resident of nor performs services in this State but is directed or controlled from an office in this State and returns to this State periodically for business purposes and the state in which the individual resides does not have jurisdiction to impose income or franchise taxes on the employer.
e. A banking organization or trust company's receipts factor is a fraction, the numerator of which is the total gross receipts of the taxpayer in this State during the tax year, and the denominator of which is the total gross receipts of the taxpayer everywhere during the tax year.
1. Sales of tangible personal property are in this State if the property is physically delivered within this State to the purchaser or the purchaser's agent (but not including delivery to the United States mail or to a common or contract carrier for shipment to a place outside this State).
2. Rents and royalties from tangible property are in this State if the property is physically located in this State.
3. Patent and copyright royalties are in this State to the extent the product or process protected by the patent is manufactured or used in this State or if the publication protected by the copyright is produced or printed in this State.
4. Gains from the sale or other disposition of real property are in this State if the property is physically located in this State.
5. Gains from the sale or other disposition of tangible property for which an allowance for depreciation is permitted for federal income tax purposes are in this State if the property is physically located in this State or is normally used in the taxpayer's business in this State.
6. Interest, fees or penalties in the nature of interest, and loan servicing fees from loans secured by real property, and gains from the sale of loans secured by real property are in this State if the property is located within this State. If the property is located both within this State and one or more other States, the receipts described in this subsection are included in the numerator of the receipts factor if more than 50% of the fair market value of the real property is located within this State. If more than 50% of the fair market value of the real property is not located within any 1 state, the receipts described in this subsection shall be included in the numerator of the receipts factor if the borrower is located in this State.
7. Interest, fees or penalties in the nature of interest, and loan servicing fees from loans not secured by real property, and gains from the sale of loans not secured by real property, are in this State if the borrower is located in this State.
8. Gross receipts in this State from interest, dividends, gains, and other income from investment assets and activities and from trading assets and activities are determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the average value of such assets which are attributable to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such assets. A “regular place of business” means an office at which the taxpayer carries on such business in a regular and systematic manner and which is continuously maintained, occupied and used by employees of the taxpayer.
9. The taxpayer shall have the burden of proving that an investment asset or activity or trading asset or activity was properly assigned to a regular place of business outside of this State by demonstrating that the day-to-day decisions regarding the asset or activity occurred at a regular place of business outside the State. Where the day-to-day decisions regarding an investment asset or activity or trading asset or activity occur at more than 1 regular place of business and 1 such regular place of business is in this State and one such regular place of business is outside this State, such asset or activity shall be considered to be located at the regular place of business of the taxpayer where the investment or trading policies or guidelines with respect to the asset or activity are established. Unless the taxpayer demonstrates to the contrary, such policies and guidelines shall be presumed to be established at the headquarters of the taxpayer. The “headquarters” of the taxpayer shall be considered located, with respect to a state-chartered bank, in the state under the laws of which the bank was created, and with respect to a national banking association, in the state of the bank's home office as designated in its charter.
10. All other gross receipts not specifically addressed herein shall be considered in this State if the activity which gives rise to the gross receipts is performed within this State.
11. Where an asset originated by the taxpayer is subsequently securitized, reference shall be made to the original transaction which created the asset and the subsequent transfer shall be disregarded for purposes of determining gross receipts attributable to this State under paragraphs (c)(6)e.6., (c)(6)e.7. and (c)(6)e.8. of this section above.
(7) The bank income tax liability of an electing banking organization or trust company shall be computed by applying the following rates of tax to the electing banking organization or trust company's elective income tax base:
7.0% of elective income tax base not in excess of $50,000,000; 5.0% of elective income tax base in excess of $50,000,000 but not in excess of $100,000,000; 3% of elective income tax base in excess of $100,000,000 but not in excess of $500,000,000; 1.0% of elective income tax base in excess of $500,000,000 but not in excess of $1,300,000,000; and 0.5% of elective income tax base in excess of $1,300,000,000.(d) Location benefit tax liability. — In addition to Bank Income Tax Liability as provided in subsection (c) of this section above, any electing banking organization or trust company paying the alternative franchise tax under this section shall be liable for a location benefit tax liability computed as follows:
(1) The location benefit tax base shall consist of all property, cash, interest bearing balances, securities, loans and leases, trading account assets, securitized assets, computed as of December 31 of the year prior to the year for which alternative franchise tax is paid, but shall not include such property, cash, interest bearing balances, securities, loans and leases, trading account assets, securitized assets as are directly attributable to the operations of a branch operating entirely outside of this State.
(2) The location benefit tax liability shall be $1,600,000, plus 0.012% of the value of assets not in excess of $5,000,000,000; 0.008% of the value of assets in excess of $5,000,000,000 but not in excess of $20,000,000,000; 0.004% of the value of assets in excess of $20,000,000,000 but not in excess of $90,000,000,000.