Key Takeaways

  • Delaware Tax Structure: Delaware has no state sales tax, low property taxes, and progressive income tax rates ranging from 2.2% to 6.6%.
  • Business-Friendly Policies: Delaware imposes a gross receipts tax on businesses but does not levy a personal property tax or an inventory tax.
  • Specific Tax Details: Excise taxes on alcohol, cigarettes, and gasoline are relatively low compared to other states.
  • Tax Incentives: Seniors and those with disabilities benefit from various property tax relief programs, and certain tax credits are available for investments and exemptions.

What Are the Types of Delaware Tax?

Delaware tax includes the following:

  • Personal income tax
  • A tax on gross receipts
  • Property taxes
  • Estate taxes
  • Capital gains tax
  • Property tax
  • Cigarette tax
  • Alcohol tax
  • Gas tax

Personal Income Taxes

Residents of the state of Delaware pay taxes on their income. Residents of Delaware file an Individual Resident Tax Return, also known as Form 200-01. This document must be filed annually.

Income tax in the state of Delaware consists of six brackets. The tax rates in those brackets range from a low of 2.2 percent to a high of 6.6 percent. A majority of taxpayers in the state of Delaware file their taxes electronically. This includes not only the current year’s taxes but also the late tax returns for previous years may also be filed electronically.

Tax Filing and Deadlines

Delaware residents must file state income tax returns by April 30th each year. For those unable to meet the deadline, Delaware allows extensions, provided taxpayers submit the appropriate form before the due date. It's essential to note that an extension to file does not extend the time to pay owed taxes.

Gross Receipts

The state of Delaware does not charge consumers sales tax on purchases. Instead, it charges most businesses a tax on gross receipts. “Gross receipts” are defined as the total receipts of a business. There are no deductions for any expenses. Gross receipts include but are not limited to costs of labor, state and federal taxes, the costs of the goods sold, the costs of any property sold, delivery costs, and any interest expense incurred.

Real Property Taxes

The state of Delaware does not impose a tax on personal and real property. However, real property may be subject to school district property taxes, county property taxes, any municipal property taxes, and vocational school district taxes.

For Delaware residents age 65 and older, the state offers a variety of property tax relief programs. Residents with disabilities may also qualify for similar programs. Applications for the senior tax credit must be filed September 1, or earlier. Applications must include a copy of either a driver’s license or birth certificate as proof of age. Any qualified joint property owner must file a separate application of their own.

Homestead Property Tax Credit

Delaware offers a Homestead Property Tax Credit for senior citizens 65 or older, which reduces their school property tax bill by up to 50%, capped at $500 annually. Applicants must have been residents of Delaware for at least three years.

Estate Taxes

Estate tax is a tax imposed on the estate of a decedent. The estate tax in Delaware applies to estates with a value over 5.43 million as of 2015. All estates with a value of less are not subject to estate tax. The result is that the vast majority of estates in Delaware are not subject to the estate tax. The tax begins at 0.8 percent and increases to the top rate of 16 percent. In Delaware, an estate with a value of over $15.47 million will pay the top marginal rate.

Capital Gains Tax

Any gain from the sale of real estate in Delaware by an individual that lives in a different state is taxed at 6.75 percent. This applies to any gain minus any expenses of selling the real estate.

Property Tax in Delaware

Delaware property taxes are among the lowest in the entire United States. Delaware's average rate of property tax is 0.51 percent. This makes it the fourth-lowest of any state in the U.S. The typical Delaware homeowner pays just $1212 every year in these taxes.

Delaware Tax on Cigarettes

The state of Delaware increased the tax on cigarettes by $0.45 in 2009. Other products made with tobacco also had their rate increased. Cigars and tobacco, for example, increased the tax rate by 50 percent of the purchase price.

Delaware Tax on Alcohol

Although sales tax isn’t collected statewide on the sale of alcohol in Delaware, there are still a few excise taxes that may apply. The taxes are typically lower than across the country. For example, the beer tax is 16 cents per gallon. This is about 1.5 cents a beer. This means Delaware’s tax on beer is the 15th lowest in the country. In Delaware, the liquor tax is $3.75 a gallon. This tax is the 17th lowest in the country.

Delaware Tax on Gas

All those who drive in the state pay the Delaware tax on gasoline. It is an excise tax. On regular gasoline, it is $0.23 per gallon. This makes it the 19th lowest in the U.S. Diesel fuel is taxed at a different rate. That rate is $0.22 per gallon, making it the 11th lowest in the country.

Other Delaware Tax Facts

The status of refunds can be tracked online by taxpayers. Delaware keeps an online list of taxpayers that are delinquent on their taxes. No intangible personal property taxes are imposed by the state of Delaware.

Taxation on Retirement Income

Delaware is considered a tax-friendly state for retirees. Social Security income is entirely exempt from state taxation. Additionally, residents 60 or older can exclude up to $12,500 of income from pensions, annuities, and certain retirement account withdrawals from taxable income.

Overview of Delaware Taxes

The taxes in Delaware are some of the lowest in the country. Property taxes in Delaware are the fourth lowest in the nation. Also, Delaware has no state sales tax. The state has a progressive income tax. The income tax rate ranges between 0 percent and 6.6 percent. The city of Wilmington has its own income tax. The rate for the city is 1.25 percent. Residents of Delaware who do not work or live in Wilmington do not pay the city’s income tax.

Delaware’s treatment of retirement income is the primary difference between Delaware income and federal adjusted gross income. Social Security income is not taxable. Income from a pension, up to $2000, is also not subject to state income tax in Delaware.

Corporate Tax Benefits

Delaware is renowned for its favorable corporate tax laws, making it a popular choice for incorporation. The state does not levy corporate income tax on entities that operate outside of Delaware. Additionally, Delaware does not impose a value-added tax (VAT), providing further tax relief for businesses.

Delaware Tax Credits

In addition to tax credits previously discussed, Delaware offers other tax credits. Income from U.S. investments, like U.S. Bonds, is not taxable at the state level in Delaware. Delaware also offers personal credit. The personal credit is $110 for every exemption claimed on a federal income tax return. For example, if you claim yourself, your spouse, and three dependents, your total personal credit would be $550 (5 x $110). Additional personal credits of $110 may be claimed if you or your spouse are 60 or over.

Business Tax Incentives

The state offers numerous incentives to attract and retain businesses. Key programs include the New Economy Jobs Program, which provides tax credits for companies creating high-paying jobs in Delaware, and the R&D Tax Credit, which encourages innovation by offsetting costs associated with research and development.

FAQ Section

1. Does Delaware have a state sales tax?

No, Delaware does not impose a state sales tax, making it an attractive shopping destination.

2. Are Social Security benefits taxed in Delaware?

No, Social Security income is exempt from state taxation in Delaware.

3. What is the property tax rate in Delaware?

Delaware has one of the lowest property tax rates in the U.S., averaging 0.51% of a property's assessed value.

4. Do businesses in Delaware pay sales tax?

Instead of a sales tax, businesses in Delaware pay a gross receipts tax based on their revenue.

5. Are there tax incentives for retirees in Delaware?

Yes, in addition to exempting Social Security income, Delaware allows retirees aged 60 and older to exclude a portion of their pension or retirement account withdrawals from taxable income.

If you have questions about Delaware state taxes, post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.