Delaware Gross Receipts Tax: Rates, Rules & Compliance Guide

Gross Receipt Tax Basics in Delaware

Delaware is one of the five states, the so-called NOMAD states, that do not have a state-wide or local sales and use tax. However, it does impose a gross receipts tax on businesses selling goods or providing services within the state. The gross receipt tax applies to the total revenue generated from sales and services without allowing deductions for costs such as goods purchased, labor, interest, delivery, or other expenses.

Since Delaware does not have a sales tax, businesses do not need to charge, collect, and remit sales tax on goods and services they sell or provide to local consumers.

Delaware State Gross Receipt Tax Rates

Delaware gross receipt tax rates depend on the taxable person's business activity, and range between 0.0945% and 1.9914%. Moreover, if the taxable person generates income from two or more different business activities, it must file separate gross receipts reports for each activity.

For example, the gross receipt tax for retailers is 0.7468%, which is calculated on taxable gross receipts from selling tangible personal property. In contrast, the applicable tax rate for wholesalers is 0.3983%.

Gross Receipt Tax Exclusions

Taxable persons can exclude a portion of their revenue to determine the gross receipts tax amount they must pay to the Delaware Division of Revenue. The exclusion amount depends on the taxable person's business activity, and is defined as either monthly or quarterly exclusion, depending on the tax reporting and payment frequency. It ranges between USD 100,000 for contractors, general services, or retailers and USD 1.25 million for manufacturers, such as automobile or clean energy technology device manufacturers.

For example, the retailers' monthly tax exclusion is USD 100,000. The first USD 100,000 received monthly is exempt from gross receipts tax. Therefore, if the retailer's total monthly gross receipts are USD 150,000, the taxable gross receipts would be USD 50,000, whereas the due tax is USD 373,40.

Tax-Exempt Transactions

Business activities not subject to gross receipts tax include sales representatives, taxi or bus operators, outdoor musical festival promoters, travel agencies, showpersons, and finance or small loan agencies. Although the gross receipts tax does not apply to tourist homes, hotels, and motels, they are subject to the Public Accommodations Tax.

Nexus Rules in Delaware

Since Delaware does not have sales and use tax rules and regulations, the only relevant element for establishing nexus for gross receipts tax purposes in the state is the physical presence. 

Physical Nexus

To determine if a taxable person has a physical nexus in Delaware, they may complete the nexus questionnaire provided by the Delaware Division of Revenue, and send it to them for confirmation. Key elements for establishing a physical nexus include owning or leasing property, having employees, storing inventory, attending trade shows, or conducting business in the state.

If the taxable person meets any state elements, it has a physical presence in Delaware, and must pay gross receipts tax. 

Taxable Goods and Services in Delaware

Application of gross receipt tax is determined based on the business activities of the taxable persons, not on the type of tangible good or service, which is usually the case with sales and use tax. Therefore, if taxable persons are owners of agents of businesses that sell or exchange goods, they must pay gross receipts tax. The definition of retailer includes automatic merchandising machine operators, regardless of the product dispensed or vended, retail plant nursery workers and florists, hucksters, peddlers, trading stamp redemption stores, catalog stores, and branch stores.

Services subject to gross receipts tax include amusement and recreation services, personal services, such as beauty salons, repairs, contracting, management, professional and rental and leasing services.

E-Commerce Framework

Remote or out-of-state sellers do not have to pay gross receipts tax in Delaware, since it generally applies to businesses with physical nexus and activity within the state. Therefore, only if out-of-state sellers have inventory, warehouse, employees, or an office in Delaware are required to calculate and pay gross receipts tax.

Marketplace Rules

Since Delaware does not impose sales and use tax, marketplace sellers are not obligated to collect and remit gross receipts tax on their sales to local consumers. 

Digital Goods and Services

Digital goods are not considered tangible personal property, therefore, they are not subject to gross receipts tax. Additionally, since there is no sales and use tax on digital services, such as SaaS, they are not taxable in Delaware, unless provided by the company that established the physical nexus. In that case, gross receipts tax may be owed. 

Digital Marketplace

As previously mentioned, Delaware does not have marketplace facilitator rules and regulations. This means that only those marketplace operators incorporated, that is with physical presence, in Delaware must pay gross receipts tax on their sales. However, due to absence of sales tax requirements, marketplace facilitators are not responsible for collecting and remitting on behalf of their sellers.

Filing and Payment Requirements in Delaware

The gross receipts tax return and payment may be monthly or quarterly depending on the taxable person's total gross receipts. In either case, the tax returns must be filed electronically by the 20th of the month following the reporting period.

Generally, large taxable persons file tax returns and pay their due taxes monthly, whereas smaller businesses file quarterly. Newly registered businesses are automatically subject to quarterly tax returns. The frequency of tax return filing is revised annually and depends on the taxable person's historical records.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Non-compliance with filing requirements results in late filing penalties of 5% per month, where the maximum is up to 50% of the amount owed. In addition, 0.5% monthly interest is calculated on the due amount from the due date until payment. Non-payment of the due tax will result in a penalty of 1%, where the maximum penalty is 25% of the amount owed.

When breaches occur due to negligence or substantial understatement of the tax, a penalty of 20% and 40% may be imposed, respectively. Tax fraud is penalized with a penalty of 75% of the due amount.

When a fraud penalty is imposed, it replaces the late filing and negligence penalties. In other words, businesses cannot be charged with all three penalties simultaneously.