Introduction
Delaware is one of the few states in the U.S. that does not have a state or local sales tax. This tax-friendly policy makes Delaware an attractive location for shoppers, businesses, and online retailers.
This guide explains why Delaware has no sales tax, how the state generates revenue, and what this means for businesses and consumers.
Does Delaware Have a Sales Tax?
No, Delaware does not impose a state or local sales tax on goods or services. This means:
- No retail sales tax on purchases made in stores.
- No online sales tax for Delaware-based businesses.
- No additional county or city sales tax rates.
Why Doesn’t Delaware Have a Sales Tax?
Unlike most states, Delaware funds its government services through other revenue sources instead of a sales tax.
How Does Delaware Generate Revenue?
- Corporate franchise taxes – Delaware is home to over 60% of Fortune 500 companies, generating billions in tax revenue from businesses.
- Personal income taxes – Residents pay income tax ranging from 2.2% to 6.6%.
- Business registration fees – Many companies incorporate in Delaware due to its business-friendly legal structure.
- Property taxes – While low compared to other states, property taxes still contribute to Delaware’s budget.
What Does No Sales Tax Mean for Consumers?
- Lower cost of goods – Shoppers save money compared to states with high sales tax rates (e.g., California at 7.25%).
- Better deals for big-ticket purchases – Buying electronics, cars, and appliances in Delaware can result in significant savings.
- Attracts out-of-state shoppers – People from nearby states travel to Delaware for tax-free shopping.
Sales Tax Benefits for Businesses in Delaware
- No need to collect and remit sales tax – Businesses avoid the complexity of filing state and local sales tax returns.
- Easier online sales transactions – Delaware-based e-commerce businesses don’t charge state sales tax on orders.
- Cost savings on supplies and equipment – Companies purchasing raw materials or office supplies pay no sales tax.
Do Delaware Businesses Charge Sales Tax on Out-of-State Customers?
While Delaware itself does not collect sales tax, businesses selling to customers in other states must follow destination-based tax laws.
- Physical store purchases in Delaware: No sales tax applies.
- Online sales to out-of-state buyers: Businesses may be required to collect sales tax based on the customer’s location (depending on economic nexus laws).
Potential Downsides of No Sales Tax
- Higher personal income taxes – Delaware residents pay state income tax ranging from 2.2% to 6.6%.
- Business registration fees – Companies incorporated in Delaware pay franchise taxes and filing fees.
- Other state taxes – While sales tax is absent, Delaware still collects revenue through corporate income tax, property tax, and excise taxes on alcohol and cigarettes.
IRS Compliance & Business Tax Considerations
- Form 1120/1120-S – Corporate income tax return.
- Franchise Tax Reports – Required for Delaware-incorporated businesses.
- Sales Tax Compliance (for out-of-state sales) – Businesses selling to other states must comply with economic nexus rules.
Conclusion
Delaware’s lack of sales tax makes it a top choice for shoppers and businesses, providing significant cost savings and a favorable business environment. However, Delaware generates revenue through other taxes, such as income tax, business franchise tax, and property tax.
For expert tax and business planning advice, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
1. Why doesn’t Delaware have a sales tax?
Delaware funds its budget through corporate franchise taxes, income taxes, and business registration fees instead of a sales tax.
2. Is everything tax-free in Delaware?
No, while retail sales are tax-free, Delaware still collects income tax, corporate tax, and property tax.
3. Can I shop in Delaware to avoid paying sales tax in my home state?
Yes, but some states may charge a use tax if you bring purchased goods back home.
4. Do Delaware online businesses have to charge sales tax?
Only if they sell to out-of-state customers where sales tax laws apply.
5. Should I register my business in Delaware to avoid sales tax?
While Delaware has no sales tax, businesses must still comply with other tax obligations, so consulting a CPA is recommended.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant and an IRS Enrolled Agent (EA). He specializes in business tax planning, Delaware corporate taxes, and sales tax compliance.
Schedule a consultation today with Anshul Goyal, CPA, for expert tax-saving strategies.