Coming on the heels of Washington, DC’s emergency session, Delaware Governor Matt Meyer (D) has now proposed a special session to decouple from some provisions of the One Big Beautiful Bill Act (OBBBA). In particular, Meyer wants the legislature to do away with the reintroduction of immediate expensing of research and development (R&D) costs, which were merely amortizable before the OBBBA was signed. To justify this, the governor cites revised estimates from the Delaware Economic and Financial Advisory Council (DEFAC) showing a significant shortfall in revenues against previous projections for the state.
The OBBBA restores and makes permanent full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. for machinery and equipment under § 168(k), reverses § 174 amortization for R&D expenditures, introduces § 168(n) expensing for qualified production property, and raises the § 179 expensing cap to $2.5 million. Delaware is one of 24 states and the District of Columbia that maintain rolling conformity with the federal taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code, so these changes flow through to its tax code automatically.
Collectively, these provisions reduce investment biases and boost economic output by accounting for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin and the time value of money. But they also come with costs.
However, these costs are frontloaded and decrease dramatically in subsequent years. Here’s why: full expensing, also called 100 percent bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco, allows businesses to deduct the entire cost of qualifying investments in the year the asset is placed in service, rather than spreading the deduction over the asset’s useful life via depreciation. In the transition years after full expensing is introduced (or reintroduced), the revenue hit can be meaningful due to the immediate deductions for new investments added to the amortized deductions from investments made in the prior years. Once all old depreciating assets finish their schedules, any new investments are deducted immediately with no subsequent deductions. Thus, in the medium to long run, the costs of expensing are modest because the policy only accelerates deductions, affecting the timing of tax collections—the government just collects the same taxes later once the investment starts generating cash flows.
First-year expensing for research and experimentation expenditures under § 174 has been part of the federal tax code since 1954, rolling into the tax codes of all conforming states. That policy shifted to five-year amortization in 2022 as a gimmicky pay-for to finance other provisions of the Tax Cuts and Jobs Act. Lawmakers anticipated the longstanding treatment would be extended, but, instead, the amortization went into effect before being reversed by the OBBBA. Continued conformity to § 174 is simply a return to longstanding corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. policy for most states, including Delaware, and not a new cost for states to avoid.
Delaware should abandon proposals that would further erode its competitiveness as a destination for businesses. In the 2026 edition of Tax Foundation’s State Tax Competitiveness Index, Delaware fell four places to a rank of 24 overall and placed dead last in its treatment of corporate taxes.
Further, while the updated October 2025 estimates from DEFAC do show a decline of $324 million in corporate tax collections against the baseline calculations from June (see Table 1), gains under other categories of revenues trim the shortfall to $196 million over the subsequent three fiscal years, and, after that, much of the cost of expensing will already have been absorbed. It would be a mistake to disadvantage the research sector on this basis.
Delaware Revenue Projections Have Changed Since the OBBBA
Delaware Revenue Projections by Type of Tax, June 2025 vs. October 2025
Source: Delaware Economic and Financial Advisory Council, “Background Detail for the Preparation of the October 2025 General Fund Revenue Estimates.”
Full expensing reduces the effective cost of research and development (due to the time value of money), making it more affordable for businesses to invest in new technologies. This is especially valuable to small and low-margin firms. Not allowing this would make Delaware less attractive for innovation-heavy sectors, such as technology and modern heavy manufacturing. Furthermore, R&D also has a substantial spillover potential, implying that surplus value created in the broader economy is not adequately captured by the returns accruing to the investor. These effects are larger than those seen for capital investments. Thus, any tax revenue costs are further offset via broader economic activity and tax revenue through potentially higher incomes and consumption.
Research is also getting more difficult—the low-hanging fruit has already been plucked—and increasingly specialized, leading to more competition for smaller pools of researchers and research inputs, implying increasing marginal costs. It would be misguided to penalize innovation within the state, further diluting the economy’s competitive advantage against other states that often offer more generous incentives for research. In fact, while figures particular to Delaware are not available, national-level data suggest that the introduction of amortization in 2022 caused an effective tax increase of 62 percent on average for US firms, and led to a $12.2 billion decrease in R&D in the first year among the most research-intensive firms.
While the governor is right to be concerned about revenue uncertainty, policymakers should exercise caution when considering proposals that enshrine rather than reverse a temporary departure from the longstanding practice—at the state and federal levels—of allowing immediate expensing for R&D costs. Decoupling from § 174 would make the state’s tax code less friendly toward investment and undermine long-term growth.
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