Delaware is not a tax-free state, but it has no sales tax
Delaware does not have a sales tax, which is unusual among U.S. states. However, it does collect income tax on wages, and property owners pay property taxes. The state also taxes corporate income and has an inheritance tax. So while Delaware stands out for one major tax break, it is not tax-free overall.
The lack of sales tax is the feature most people notice. When you buy something in a Delaware store, you pay only the price on the tag—no additional percentage added at checkout. This applies to clothing, groceries, electronics, and most other goods. The exception is gasoline, which carries a fuel tax.
People sometimes move to Delaware or shop there specifically to avoid sales tax, especially those living in nearby states like Pennsylvania (6% sales tax) or New Jersey (6.625% sales tax). However, if you live outside Delaware, your home state may require you to pay sales tax on items shipped to you, depending on state law and the retailer's policies.
Key Takeaways
- Delaware has no sales tax on most goods, but it does charge income tax on wages and salaries.
- Property owners in Delaware pay property taxes, which vary by county and municipality.
- The state taxes corporate income and has an inheritance tax on estates above a certain threshold.
- Gasoline purchases in Delaware include a fuel tax, even though other sales are tax-free.
- Shopping in Delaware to avoid sales tax only saves money if you live in a state with a sales tax and can legally avoid paying it in your home state.
Delaware's income tax rates and brackets
Delaware taxes income from wages, salaries, and self-employment. The state uses a progressive tax system, meaning the tax rate increases as your income increases. Tax brackets change each year, so the exact percentages and income thresholds vary annually.
As of recent years, Delaware's income tax rates range from roughly 2% on the lowest incomes to about 5.75% on the highest. The state also allows a standard deduction, which reduces the amount of income subject to tax. You can deduct federal income tax paid, which is a significant benefit compared to many other states.
If you work in Delaware but live in another state, you may owe Delaware tax on wages earned in the state. Conversely, if you live in Delaware and work out of state, you typically owe Delaware tax on all income, though you may receive a credit for taxes paid to the other state to avoid double taxation.
Property taxes in Delaware counties
Delaware property taxes are assessed at the county level, so the rate depends on where your property is located. New Castle County (which includes Wilmington), Kent County, and Sussex County each set their own rates. Property tax rates in Delaware are generally considered moderate compared to national averages, but they vary significantly between counties.
Your property tax bill is based on the assessed value of your home or land. The county assessor determines this value, and you have the right to challenge it if you believe it is too high. Property taxes fund local schools, roads, emergency services, and other municipal services.
Homeowners may be may have access to to property tax exemptions or reductions depending on age, disability status, or military service. Delaware also offers a homestead property tax exemption for owner-occupied homes, though the details and amounts vary by county. Contact your county assessor's office to learn what exemptions you may may have access to for.
Corporate and business taxes in Delaware
Delaware has a reputation as a business-friendly state, partly because of its corporate tax structure. The state taxes corporate income, but the rates are competitive, and the state offers various deductions and credits for businesses. Many corporations incorporate in Delaware because of the state's business laws and court system, even if they operate elsewhere.
If you own a business in Delaware, you will owe corporate income tax on profits. The rate depends on the type of business entity and your income level. Delaware also charges a franchise tax on corporations, which is separate from income tax and is based on the value of your stock or assets.
Self-employed individuals and sole proprietors pay income tax on business earnings as part of their personal income tax return. You may also owe federal self-employment tax and Delaware's unemployment insurance tax if you have employees.
Inheritance and estate taxes
Delaware has an inheritance tax and an estate tax, which are two separate taxes that explore when someone dies. The inheritance tax is paid by people who receive money or property from a deceased person's estate. The estate tax is paid by the estate itself before assets are distributed to heirs.
Not all heirs pay inheritance tax. Spouses, children, and grandchildren are typically exempt, as are charitable organizations. More distant relatives and unrelated beneficiaries may owe tax on what they receive, depending on the amount and their relationship to the deceased.
The estate tax applies only to estates above a certain threshold, which changes periodically. If the total value of the estate is below that threshold, no estate tax is owed. An estate planning attorney or tax professional can help you understand how these taxes might affect your situation.
Fuel tax and other excise taxes
Although Delaware has no general sales tax, the state does tax gasoline and diesel fuel. The fuel tax is included in the price you pay at the pump and varies slightly depending on the type of fuel. This is one of the main exceptions to Delaware's no-sales-tax rule.
Delaware also collects excise taxes on other items, including cigarettes, alcoholic beverages, and cannabis products (where legal). These taxes are built into the retail price and do not appear as a separate line item on your receipt. The rates on these items are set by the state and change periodically.
If you purchase items subject to excise tax in Delaware, you pay the tax regardless of where you live. However, if you buy cigarettes or alcohol in Delaware and transport them across state lines, your home state may require you to pay additional tax or may prohibit the purchase altogether.
How Delaware compares to neighboring states
Delaware's lack of sales tax makes it stand out in the Northeast, where most states have sales taxes between 5% and 7%. Pennsylvania charges 6% sales tax, New Jersey charges 6.625%, and Maryland charges 6%. This difference can add up significantly on large purchases, which is why some people shop in Delaware when possible.
However, Delaware's income tax and property taxes are not dramatically lower than neighboring states. When you factor in all taxes together—income, property, and excise—Delaware's overall tax burden is moderate. The savings from no sales tax may be offset by other taxes depending on your income level and property value.
If you are considering moving to Delaware for tax reasons, compare your total tax liability in your current state with what you would pay in Delaware. Income tax, property tax, and the cost of living all matter. A tax professional can help you run these numbers for your specific situation.
Frequently Asked Questions
Can I avoid paying sales tax by shopping in Delaware?
If you live in Delaware, you pay no sales tax on purchases there. If you live in another state, you may still owe sales tax to your home state on items shipped to you, depending on state law and the retailer's policies. Shopping in person in Delaware and taking items home may avoid sales tax, but check your home state's rules first.
Do I have to pay Delaware income tax if I work there but live in another state?
Yes, you owe Delaware income tax on wages earned in Delaware, even if you live elsewhere. However, you may receive a credit on your home state's tax return for taxes paid to Delaware, so you do not pay twice on the same income. File a Delaware tax return for the income earned there.
What is Delaware's property tax rate?
Property tax rates vary by county in Delaware. New Castle, Kent, and Sussex counties each set their own rates. Contact your county assessor's office for the exact rate in your area. Rates are generally moderate compared to national averages, but they differ significantly between counties.
Does Delaware tax groceries or clothing?
No, Delaware has no sales tax on groceries, clothing, or most other goods. Gasoline is taxed, as are cigarettes, alcohol, and cannabis products. If an item has no excise tax listed, you pay only the base price with no additional tax at checkout.
Is Delaware a good state to move to for tax savings?
Delaware's lack of sales tax is a real benefit, but overall tax savings depend on your income, property value, and current state. Compare your total tax liability—income, property, and excise taxes—in both states. A tax professional can help you determine whether moving would reduce your taxes.