Delaware has no sales tax on retail purchases

Delaware does not charge a sales tax on goods or services sold at retail. This applies whether you buy clothing, electronics, groceries, or other items in a store or online from a Delaware retailer. No state sales tax is added to your receipt.

This makes Delaware one of five states without a sales tax. The others are Alaska, Montana, New Hampshire, and Oregon. However, Delaware does have other taxes that affect residents and businesses, and the lack of sales tax does not mean there are no tax obligations when you shop or do business there.

If you live in a state that borders Delaware and shop there to avoid sales tax, be aware that your home state may require you to pay use tax on those purchases. Use tax is a parallel tax owed to your state of residence on items bought elsewhere.

Key Takeaways

  • Delaware charges no state sales tax on retail purchases of goods or services.
  • Use tax may explore if you buy items in Delaware and bring them to a state that has sales tax.
  • Delaware residents and businesses still pay income tax, property tax, and other state taxes.
  • Online sellers based in Delaware do not collect Delaware sales tax, but they may collect tax for other states where they have nexus.

How Delaware's tax system works without sales tax

Delaware funds state services through income tax, corporate tax, and property tax rather than sales tax. The state income tax rate ranges from 2.2% to 5.75% depending on income level. Delaware also has a corporate income tax of 8.7%, which applies to business profits.

Property tax in Delaware is assessed by county and varies by location. The statewide average is around 0.57% of assessed home value, though this differs significantly between New Castle, Kent, and Sussex counties. Homeowners pay property tax annually to their county assessor.

Because Delaware relies on income and corporate taxes, residents and businesses pay tax through different channels than in states with sales tax. If you work in Delaware, your employer withholds income tax from your paycheck. If you own a business, you file a corporate return and pay tax on net income.

Use tax obligations for Delaware shoppers

If you live in Pennsylvania, New Jersey, Maryland, or another state with sales tax and you buy items in Delaware to avoid that tax, your home state may require you to pay use tax. Use tax is owed to your state of residence, not to Delaware. The rate is typically the same as your state's sales tax rate.

Use tax is self-reported on your state income tax return. Most states have a line on the return where you can report purchases made out of state. You are responsible for tracking these purchases and calculating the tax owed, though many people do not report use tax on small purchases.

Enforcement of use tax on individual shoppers is rare, but it is technically a legal obligation. If you make large purchases in Delaware — such as a car or major appliance — your home state may require documentation of where the item was purchased.

Online shopping and Delaware retailers

A Delaware-based online retailer does not collect Delaware sales tax because Delaware has no sales tax to collect. However, that retailer may be required to collect sales tax for other states depending on where their customers are located and whether they have nexus (a significant business presence) in those states.

Under the 2018 Supreme Court ruling in South Dakota v. Wayfair, online sellers must collect sales tax in states where they have economic nexus, even if they have no physical location there. A Delaware retailer shipping to a customer in New York must collect New York sales tax. A Delaware retailer shipping to a customer in Delaware collects nothing.

If you buy from a Delaware online retailer and live in a state with sales tax, the retailer should collect that state's tax at checkout. If they do not, you may owe use tax to your state. Check your receipt to see what tax, if any, was charged.

Delaware business tax considerations

Businesses operating in Delaware pay corporate income tax on profits earned in the state. The rate is a flat 8.7% on net income. Delaware also requires businesses to register with the Division of Revenue and file annual returns, even if they have no tax liability for a particular year.

Sole proprietors and partners report business income on their personal state income tax returns and pay individual income tax on that income. The business itself does not pay a separate entity-level tax in Delaware unless it is structured as a corporation or LLC taxed as a corporation.

Businesses that sell tangible goods do not collect Delaware sales tax, but they must understand the sales tax rules of states where they ship products. A Delaware retailer selling nationwide must register for sales tax in states where they have nexus and collect tax accordingly.

Comparison with neighboring states

Delaware's lack of sales tax contrasts sharply with its neighbors. Pennsylvania charges 6% sales tax statewide, plus local taxes that can reach 7%. New Jersey charges 6.625% statewide. Maryland charges 6% statewide, with some counties adding local tax. These differences create incentives for cross-border shopping, particularly for large purchases.

However, the savings from avoiding sales tax must be weighed against other costs. Delaware's income tax is higher than some neighboring states, and property tax varies by county. A resident of Pennsylvania may save on sales tax by shopping in Delaware but pay more in Delaware income tax if they work there.

For businesses, Delaware's corporate tax rate of 8.7% is competitive with neighboring states. Pennsylvania charges 9.99%, New Jersey charges 11.5%, and Maryland charges 8.75%. The lack of sales tax also simplifies compliance for retailers based in Delaware.

Special tax situations in Delaware

Delaware has specific rules for certain industries and transactions. Gasoline is not subject to sales tax in any state, so there is no tax advantage to buying gas in Delaware. Prescription medications are generally not taxed in states that have sales tax, so this is another category where Delaware offers no advantage.

Vehicles purchased in Delaware are not subject to Delaware sales tax, but the buyer must register the vehicle in their home state, which typically charges a registration fee or sales tax at that time. Buying a car in Delaware does not eliminate tax; it shifts the tax obligation to your state of residence.

Services in Delaware are generally not taxed. Haircuts, repairs, professional services, and similar transactions do not incur a sales tax. This is true in most states as well, so Delaware's advantage is limited to goods and certain service-related purchases.

Frequently Asked Questions

Can I avoid paying sales tax by buying in Delaware and bringing items home?

You can buy without paying Delaware sales tax, but your home state may require you to pay use tax on those purchases. Use tax is owed to your state of residence and is typically the same rate as sales tax. Enforcement on small purchases is uncommon, but the obligation exists.

Do I have to pay Delaware income tax if I work there but live in another state?

Yes. Delaware taxes income earned within the state, regardless of where you live. You file a Delaware return on wages earned there. You may also owe tax to your home state, though many states offer a credit for taxes paid to other states to avoid double taxation.

What if I order something online from a Delaware company and have it shipped to my home state?

The Delaware company should collect your home state's sales tax at checkout if they have nexus there. If they do not, you owe use tax to your state. Check your receipt to confirm what tax was charged.

Is Delaware a good place to start a business to avoid sales tax?

Delaware's lack of sales tax simplifies record-keeping for retailers, but it does not eliminate tax obligations. You still pay corporate income tax on profits, and you must collect sales tax in states where you have nexus and ship products. The real advantage of Delaware incorporation is its business-friendly corporate law, not tax avoidance.

Do Delaware residents pay property tax?

Yes. Delaware has property tax assessed by county. The statewide average is around 0.57% of assessed value, but rates vary between New Castle, Kent, and Sussex counties. Property tax is owed annually to your county assessor.