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Delaware Tax Laws: Definition and Legal Overview

Despite being the second-smallest state in the United States, comprising only 1,954 square miles, Delaware has a robust tax infrastructure that governs its residents and visitors. This is in part due to its reputation as a haven for business. Because there are so many corporations registered in the state, Delaware also collects revenue through franchise taxes on business entities.

In addition, some have called Delaware a “tax law nightmare” due to its position as the legal home of thousands of corporations. In some cases, taxation becomes especially complicated because many of those companies do not actually have their headquarters or operations in Delaware. In other cases, the companies have headquarters in Delaware but choose to claim tax residency elsewhere for one reason or another.

Some people may look at Delaware as a tax haven, which is one of the primary drivers for why so many companies and corporations have a nexus to the state. One of the biggest reasons for this is that, in most cases, up until 2014, no one paid taxes on dividends in Delaware or by Delaware-based companies.

If you have questions about legal taxes or tax law in Delaware, an experienced Delaware tax attorney can help.

Delaware Tax Laws

In Delaware, the primary revenue collector for the state is the Division of Revenue (DOR). This department collects more than $4 billion in taxes and fees every year to support many initiatives that benefit the state’s residents. The DOR is responsible for accurately collecting these funds and then paying them into the appropriate accounts at the Federal Reserve Bank.

What Is Tax Law

While tax law in Delaware is quite broad, these are some of the most important things to know about taxes in the state:

  • Delaware does not have an estate tax, which means that the state will not tax the estate of a decedent before the designated heirs receive it. It also does not have a gift tax or an inheritance tax. However, residents may incur taxes if they receive an inheritance from someone who lives outside of Delaware. In addition, the federal gift tax and federal estate tax may still apply to state residents if the gift or estate exceeds the thresholds for exemption.
  • The income tax rate that the state imposes depends on how much money the individual makes. For people who make less than $60,000 per year, the graduated tax rate can range from 2.2% to 5.55%. For people who earn $60,000 or more per year, the maximum income tax rate they may face is 6.6%.

You can contact a knowledgeable Delaware tax lawyer for information regarding your unique situation.

Delaware Sales Tax Laws

Delaware is one of only nine states that does not have a sales tax. Instead, the state relies on excise taxes for revenue. Excise taxes are collected from businesses under the authority of the Department of Finance.

While DE does not impose sales tax at the state or local level, it does levy a tax on the sellers of goods — both tangible and intangible — or service providers in the state. The state’s definition of “gross receipts” is a business’s total receipts received from the goods it sold or services it rendered within Delaware. Businesses may not take deductions for state or federal taxes, labor costs, expenses incurred, or the cost of the goods that they sold.

Definition of Tax Law in Delaware

If you need help with Delaware taxes, or you do not know what is the right thing to do in your particular situation, it can be valuable to speak with an experienced Delaware tax lawyer.

Many taxpayers may worry that getting help with their tax problems would be cost-prohibitive. Luckily, a lawyer can work within your budget to solve your problems if you are facing significant tax debt or substantial penalties.

Working with an experienced legal professional regarding your Delaware taxes may be beneficial in a number of ways. For example, you may be able to receive more in deductions or credits. You can also rest assured that you are not making any mistakes when filling out your forms, which could result in penalties later on.

Delaware tax law is subject to change each year. This makes it especially important for individuals who are self-employed to be aware of what is changing so they can plan for the future.

Self-employment income in Delaware can be a complicated topic, which is why it is recommended to work with a tax law firm when trying to determine the best course of action. It is important for these professionals to have knowledge on things such as state and federal deductions, who qualifies for them, and how they are applied.

In addition, some of the benefits of working with a tax law firm include:

  • Reviewing your previous returns to ensure you are filing correctly
  • Reducing your chance of an audit by separating business and personal expenses properly
  • Ensuring that what is deducted will provide you with maximum tax savings, while complying with all rules associated with doing so
  • Preventing mistakes that could result in penalties
  • Guidance on the internal appeals process for those who have been audited by the state

You might be eligible to receive a tax refund from the IRS as well as from the state of Delaware. To do so, you would need to file a return with both federal and state. To learn more about how a tax law professional might be able to help you, contact us today.

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