In addition to federal taxes in America, many states also rely on state taxes for income. The rates and categories of tax vary state by state. Delaware, the second-smallest state by landmass, is known for its beneficial tax policies.
Sales Tax
Unlike graduated income tax rates, which use complicated tax brackets, sales tax is a transparent way to collect tax revenue for a state or local government. States can impose a statewide retail sales tax due on all qualifying transactions in the marketplace. Additionally, towns and municipalities may add on to that amount to raise funds locally. There are currently five states that do not impose any sales tax; Delaware is one of them.
Often people will travel to Delaware to purchase expensive goods to evade the payment of other state taxes. For example, California has a state minimum sales tax of 7.25 percent, and in Los Angeles, California, the cumulative sales tax is 9.5 percent!
Retirement and Personal Income Taxes
The United States’ federal retirement program, Social Security, pays retirees a yearly salary for the remainder of their life once they qualify. Some states have engaged in Social Security income taxation, capturing some of their resident’s income from the federal government. Delaware does not tax Social Security Income.
Some states also tax other income from retirement accounts like a 401(k) or IRA; Delaware has a limited tax on these accounts, with a 6.6 percent maximum on all taxable income.
Estate Tax
If you’re a US citizen and your estate assets are less than $11.4 million, you are not taxed on the federal level. However, one in four states has their state estate taxes, occurring at the death of the primary asset holder. Although some states have rates as high as 20 percent, Delaware shows its tax benefits again with zero estate taxes.
Delaware Residency
To take advantage of Delaware’s favorable tax policies, you must become a resident of the state of Delaware. You must live in Delaware for 184 days and maintain a predominant physical presence in Delaware for a minimum of a year after moving to the state. You can apply for a Driver’s license in the state and file a tax return for the following year. To learn more about how to become a Delaware resident, visit https://delaware.gov/
Corporate Income Tax
Delaware corporations that do not conduct business in Delaware are exempt from filling a state corporate Income Tax Return, regardless of if they were incorporated following Delaware law. If you do business in Delaware, you are required to file a return and pay income tax. Delaware corporation income tax is assessed at a flat 8.7% of your Delaware taxable income.
You can read more about taxes in Delaware at https://taxfoundation.org/2020-sales-taxes/.
See here for Corporate Taxes in Delaware https://revenue.delaware.gov/business-tax-forms/filing-corporate-income-tax/
