Key Takeaways

  • Delaware is one of the few U.S. states with no state or local sales tax, making it attractive for both shoppers and businesses.
  • Despite there being no sales tax in Delaware, the state imposes a Gross Receipts Tax (GRT) on businesses, which functions as a tax on total revenue without deductions.
  • Delaware’s tax-friendly environment — including no inheritance tax, low property taxes, and no tax on intangible assets — makes it a popular location for incorporation.
  • Individual income tax rates range from 0% to 6.6%, and certain exemptions and credits are available for retirees and public service workers.
  • Property taxes are among the lowest in the U.S., with some county-level and school district assessments still applicable.

Delaware state tax is lower than any other state in the country, which is one of the reasons why so many businesses incorporate there, even if their primary functions are taking place elsewhere. Additionally, if you have a lot of back-to-school or holiday shopping to do, then Delaware is the place to go, as the state does not have a sales tax.

Looking to move or purchase a beachside vacation home? Again, Delaware may be the place you want to settle, given the low property taxes. Additionally, there is not an inheritance tax in Delaware, and you can easily transfer stocks between individuals, without taxation.

Delaware as a Tax Shelter

You have probably heard the term tax shelter, whether on the news or watching a police procedural on television, but you may not fully know what that means. Simply put, a tax shelter is anything that manages to reduce taxable income, thus resulting in a reduction of what you are expected to pay in taxes; this can be accomplished by both individuals and corporations. For the following reasons, Delaware is considered a tax shelter, insofar as corporations are concerned:

•A company that is incorporated in Delaware, but actually doing business someplace else, does not have to pay income tax on goods and services.

•There is no sales tax in Delaware. As such, if a company is registered in Delaware, even if they are physically conducting business elsewhere, their customers or clients do not have to pay sales tax.

•Should you want to be physically based in Delaware, you can own your office space and pay significantly less in property tax than you would in most other localities.

•While Delaware does have franchise and LLC taxes, they are much lower than other parts of the country, at a flat rate of only $100 and $250, respectively.

•Other investment income earned by a Delaware holding company is not subjected to corporate taxes.

Additionally, Delaware is known for providing certain corporate protections for business owners, as their personal information, such as addresses, are not public information.

While Delaware does not implement a sales tax as it pertains to the consumers, businesses are taxed on their gross receipts. The gross receipts are essentially the total receipts without any deductions.

Why Businesses Benefit from No Sales Tax in Delaware

One of the most significant advantages of incorporating or operating in Delaware is its absence of state or local sales tax. This means that businesses selling goods and services do not have to collect sales tax from customers, significantly simplifying compliance and reducing the cost of goods sold. Consumers also benefit directly — many people travel to Delaware for major purchases, such as electronics, furniture, or back-to-school supplies, to save money that would otherwise be paid in sales tax in other states.

However, the absence of a sales tax does not mean there is no tax liability at all. Delaware offsets this with a Gross Receipts Tax (GRT), which applies to the total revenue a business earns, without deductions for expenses like labor, materials, or rent. Rates vary by industry and can range from 0.0945% to 0.7468% depending on the type of business and volume of revenue. While this tax is paid by the business — not the consumer — it’s an important factor to consider when setting prices and planning operations.

This structure creates a business-friendly environment that attracts companies to incorporate in Delaware. By eliminating the administrative burden of collecting and remitting sales tax, companies can focus more resources on growth, while consumers enjoy lower out-of-pocket costs.

Income Tax

The income tax situation is another reason why Delaware can be such an appealing place to either live or do business. (Or, both!) There are currently seven tax brackets in Delaware on which your income could be taxed, ranging from 0 percent to 6.6 percent, which is still quite a bit lower than many other places in the United States. Only if you live in the city of Wilmington are you required to pay a tax to that locality, at a rate of 1.25 percent.

Retirees are provided some additional tax benefits, as Social Security and pension income is not taxed up to $2,000.

Should you be a firefighter or rescue worker, you may also get to apply for income tax credit for up to $400 for the purchase of your uniforms and other work-related items.

Delaware Sales Tax

With no sales tax, it is easy to see why Delaware is such a beacon of shopping. While consumers are not subjected to a sales tax, there are licensing taxes involved with being a business owner in Delaware, the range of which can vary depending upon the categorization of the business activities.

Understanding the Gross Receipts Tax (GRT)

Although there is no sales tax in Delaware, the Gross Receipts Tax serves as a primary revenue source for the state. Unlike sales tax, which is typically added to a transaction and passed on to consumers, the GRT is paid directly by the business and is based on total gross revenue. This means even businesses operating at slim profit margins may still owe tax on all revenue generated.

Some key points about the GRT include:

  • Tax Base: Total gross revenue from sales of goods or services without deductions.
  • Applicable to All Business Types: Retailers, wholesalers, manufacturers, service providers, and others are subject to the tax.
  • Filing Frequency: Most businesses file quarterly, although some may need to file monthly depending on revenue.
  • Industry-Specific Rates: For example, retailers typically pay around 0.0945%, while manufacturers and wholesalers may face different rates.

Understanding the GRT is essential for financial planning, as it impacts pricing strategies, profit margins, and compliance requirements. Many businesses choose to consult tax professionals to ensure proper reporting and payment.

Personal and Real Property Taxes

Imagine not having to pay real estate taxes on your house! Well, that is a benefit of being a property owner in Delaware. With that said, it does not mean that you are entirely off the hook, as there are certain counties that do implement a property tax, even if one does not exist at the state level. Additionally, you may be required to pay school district property taxes and vocational school property taxes.

While you are not required to pay taxes on personal property, either, you are required to register the ownership of your personal property, with the state; the exception to this being your vehicle.

Additional Tax Advantages in Delaware

Delaware’s tax structure extends beyond the lack of a sales tax. The state offers several additional advantages for both individuals and businesses:

  • No Inheritance or Estate Tax: Assets can be transferred without a state-level inheritance tax burden.
  • No Tax on Intangible Assets: Stocks, bonds, and other investment vehicles are not subject to state taxation.
  • Low Property Taxes: Property tax rates in Delaware are among the lowest in the country — often a fraction of those in neighboring states.
  • No Personal Property Tax: Businesses do not pay tax on equipment, inventory, or other personal property, which can significantly reduce ongoing costs.

These policies create a favorable environment for wealth preservation, business formation, and long-term investment — all of which contribute to Delaware’s reputation as a tax-efficient state.

Frequently Asked Questions

  1. Why does Delaware have no sales tax?
    Delaware’s tax policy is designed to attract businesses and shoppers. Instead of taxing sales, the state relies on revenue from sources like the Gross Receipts Tax and corporate fees.
  2. What is the Gross Receipts Tax (GRT)?
    The GRT is a tax on total business revenue without deductions for expenses. It is paid by the business, not the consumer, and rates vary based on industry and revenue level.
  3. Are online sales subject to Delaware tax?
    No, Delaware does not tax online sales. However, businesses based in other states selling to Delaware residents may still need to comply with their own state’s tax laws.
  4. Do property owners in Delaware pay taxes?
    While there’s no statewide property tax, counties and school districts may levy local property taxes, which remain among the lowest in the U.S.
  5. How does Delaware’s tax structure benefit corporations?
    Delaware’s lack of sales tax, low property taxes, absence of taxes on intangible assets, and business-friendly corporate laws make it one of the most attractive states for incorporation.

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