Why Delaware Has No Sales Tax
Delaware is one of only five states in the United States with no sales tax. The others are Alaska, Montana, New Hampshire, and Oregon.
For businesses, this raises questions: Do you need a resale certificate in Delaware? What taxes does Delaware charge instead? And how does operating in a no-sales-tax state affect your multi-state compliance?
Delaware's Tax Structure
Delaware does not impose a general sales tax on goods or services. This has been true since the state's founding and remains a core part of Delaware's business-friendly reputation.
Instead of sales tax, Delaware generates revenue through:
| Tax Type | Rate | Who Pays |
|---|---|---|
| Gross Receipts Tax | 0.0945% - 1.9914% | Businesses (not consumers) |
| Corporate Income Tax | 8.7% flat | Corporations |
| Personal Income Tax | 0% - 6.6% graduated | Residents |
| Property Tax | Varies by county | Property owners |
The Gross Receipts Tax
Delaware's gross receipts tax is a tax on businesses, not consumers. It applies to total gross revenues from sales of goods and services within Delaware.
Rates vary by business type:
| Business Category | Rate |
|---|---|
| Retailers | 0.7468% |
| Wholesalers | 0.3734% |
| Manufacturers | 0.1862% |
| Food sellers | 0.0945% |
| Most services | 0.3927% - 0.7468% |
Unlike sales tax, businesses cannot pass gross receipts tax to customers as a line item. It's built into operating costs.
Do You Need a Resale Certificate in Delaware?
No. Because Delaware has no sales tax, there is no sales tax exemption to claim. Resale certificates are used to avoid paying sales tax on goods purchased for resale. With no sales tax, there's nothing to exempt.
However, if you operate in Delaware AND other states, you still need resale certificates for your purchases in those other states.
Example: A Delaware-based e-commerce seller buying inventory from a California wholesaler still needs a valid resale certificate to avoid California sales tax on those purchases.
No-Sales-Tax States Comparison
| State | Sales Tax | Other Key Taxes |
|---|---|---|
| Delaware | None | Gross receipts tax on businesses |
| Alaska | None (state), but local taxes up to 7.5% | No state income tax |
| Montana | None | No local sales taxes |
| New Hampshire | None | 7.5% business profits tax |
| Oregon | None | High income tax (up to 9.9%) |
Alaska is unique: no state sales tax, but local jurisdictions can impose their own. Some Alaska cities and boroughs charge up to 7.5%.
Why Delaware Has No Sales Tax
Delaware's no-sales-tax policy dates back to the state's early history and reflects several strategic decisions:
1. Geographic Advantage
Delaware is small (second smallest state) and borders states with sales tax. Shoppers from Pennsylvania, Maryland, and New Jersey cross the border to make major purchases tax-free. This drives retail traffic and economic activity.
2. Incorporation Revenue
Delaware is the incorporation capital of the U.S. Over 60% of Fortune 500 companies are incorporated there. The state collects significant franchise taxes and filing fees from these entities, reducing reliance on sales tax revenue.
3. Business-Friendly Reputation
No sales tax is part of Delaware's broader pro-business identity, which includes business-friendly courts, privacy protections for LLCs, and streamlined incorporation processes.
Impact on E-commerce Sellers
If you're an online seller based in Delaware, here's what you need to know:
You Still Have Sales Tax Obligations Elsewhere
Delaware's no-sales-tax status only applies to transactions within Delaware. If you sell to customers in other states and exceed their economic nexus thresholds, you must:
- Register for sales tax in those states
- Collect sales tax from customers in those states
- File returns and remit collected tax
Example: A Delaware seller with $150,000 in California sales must register with California, collect California sales tax, and file California returns, even though Delaware has no sales tax.
FBA Sellers Have Multi-State Nexus
If you use Fulfillment by Amazon (FBA), your inventory is stored in warehouses across the country. This creates physical nexus in those states, potentially requiring registration even below economic nexus thresholds.
Marketplace Facilitator Laws Help
Good news: Amazon, eBay, Etsy, and other major marketplaces now collect and remit sales tax on your behalf in most states. This reduces your compliance burden significantly.
Delaware Gross Receipts Tax Registration
While you don't need a resale certificate, Delaware businesses must register for gross receipts tax if they conduct business within the state.
Who Must Register
- Any business with gross receipts from Delaware sources
- Businesses with employees in Delaware
- Businesses with physical presence in Delaware
How to Register
- File with the Delaware Division of Revenue
- Apply online at revenue.delaware.gov
- Receive your Delaware business license
Filing Requirements
| Annual Gross Receipts | Filing Frequency |
|---|---|
| Under $80,000 | Quarterly or annually |
| Over $80,000 | Monthly |
Buying From Delaware Vendors
If you're buying inventory from a Delaware-based supplier:
- No Delaware sales tax will be charged (there is none)
- You may owe use tax in your home state on the purchase
- Keep records to prove the purchase was for resale if audited
Use tax is what you pay when you buy something tax-free but use it in a state with sales tax. If you're buying for resale (not personal use), your resale certificate exempts you from use tax too.
Delaware vs. Registering Elsewhere
Should you incorporate in Delaware to avoid sales tax? Not for sales tax reasons.
Delaware incorporation does not exempt you from sales tax obligations in other states. If you have nexus in California, Texas, or Florida, you owe those states' sales tax regardless of where you're incorporated.
Delaware incorporation makes sense for:
- Corporate governance benefits
- Business-friendly court system
- Privacy protections
- Franchise tax structure for large companies
It does not make sense solely to avoid sales tax. That's not how sales tax nexus works.
Key Takeaways
-
Delaware has no sales tax. Businesses and consumers pay $0 sales tax on purchases in Delaware.
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No resale certificate needed for Delaware. Without sales tax, there's nothing to exempt.
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Gross receipts tax applies instead. Delaware businesses pay a tax on total revenues, not on individual transactions.
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Multi-state obligations remain. Selling to other states still triggers sales tax collection requirements in those states.
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Incorporation in Delaware doesn't avoid sales tax. Nexus is based on where you sell, not where you incorporate.
Related Resources
- What Is a Resale Certificate? - Understanding when you need one
- Economic Nexus Thresholds by State - Know when registration is required
- Multi-State Resale Certificates - Managing compliance across states
Frequently Asked Questions
Does Delaware have sales tax?
No. Delaware is one of five states with no state or local sales tax. The others are Alaska, Montana, New Hampshire, and Oregon.
Do I need a resale certificate in Delaware?
No. Resale certificates exempt you from sales tax. Since Delaware has no sales tax, there is nothing to exempt.
What taxes does Delaware have instead of sales tax?
Delaware has a gross receipts tax on businesses, corporate income tax, personal income tax, and property taxes. The gross receipts tax ranges from 0.0945% to 1.9914% depending on business type.
If I'm based in Delaware, do I still collect sales tax?
You collect sales tax only on sales to customers in states where you have nexus and are registered. Delaware sales are tax-free. Sales to other states follow those states' rules.
Why doesn't Delaware have sales tax?
Delaware uses other revenue sources including gross receipts tax, corporate franchise fees, and income taxes. The no-sales-tax policy also drives retail traffic from neighboring states.