Airbnb, HomeAway, and VRBO have changed the way vacationers travel. More and more guests are choosing to rent private homes rather than book hotels. With a bounty of popular destinations including Wilmington, Rehoboth Beach, and Dover, The First State offers prospective short-term rental hosts the opportunity to bring in extra income and meet new people.
But new income opportunities can bring new tax implications. Some accommodations in Delaware are subject to lodging taxes, and state and local governments expect operators to collect these taxes from guests and remit them to tax authorities.
Avalara has put together this guide to help you comply with Delaware short-term rental tax laws. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.
Disclaimer: No short-term vacation rental tax guide is a substitute for professional tax advice. Consider it an asset to help you understand and prioritize your vacation rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Delaware tax laws.
Lodging tax basics
When you start operating a short-term rental, you may not have experience with lodging taxes, but you are probably familiar with income tax. It’s important to understand the difference between the two.
Income taxes are reported and paid annually to the federal and many state governments on “taxable” income, which is income after allowed expense deductions. You pay this tax directly to the government.
Lodging taxes on a short-term rental is a percentage of the cost of your guest’s stay that is added to the price of the bill. The guest pays the tax, but you are responsible for collecting the tax and paying it to the proper tax authority.
Taxes on short-term rentals can be known as lodging tax, sales tax, sleeping room tax, transient tax, occupancy tax, bed tax, tourist tax, and more.
Who is required to collect and file lodging taxes in Delaware?
In Delaware, hotels, motels, and “tourist homes” which are defined as having at least five permanent bedrooms for the use of tourists or transient guests, but which do not have cooking facilities for the use of guests, must charge lodging tax on the cost of accommodations.
Lodging taxes do not apply to “occupants who occupy or who have the right to occupy the room or rooms” for a period of at least five consecutive months.
Location is key to compliance
The location of your rental is a crucial piece of information for lodging tax compliance. Your address will determine which tax jurisdictions you are required to report to, which taxes you need to collect, and your tax rates.
You can use our lodging tax lookup tool to get a rate report specific to your Delaware address. The report includes the estimated total tax rate to collect from guests, number of required registrations, number and frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.
It should be noted that tax rates and the rules governing them change frequently. Please consider your tax rate report to be informative rather than authoritative.
Registering with state and local tax authorities
If you are required to collect taxes on accommodations in Delaware, you are legally required to register with the Delaware Division of Revenue. You can register online. When you register, you will receive instructions on filing your lodging taxes.
You may also be required to register with local tax authorities. Be sure to check with them for details.
Do I need to form an LLC?
In Delaware, you do not need to form an LLC in order to register with tax authorities.
Local short-term rental regulations
Short-term rental operators in Delaware should be aware of local regulations that apply to them, including rules covering:
- Permits, licenses, and registration
- Neighborhood notification
- Building and housing standards
Homeowner Associations (HOA) located in Delaware may also have specific rules regarding vacation rentals. As a member, it’s your responsibility to be aware of the association’s policy. It’s important to review this information to understand any restrictions or limitations on short-term vacation rentals.
Other rules and regulations associated with leases/subletting or condo/co-op rules may apply to your situation. A good place to start is by reviewing your signed lease and speaking with your landlord or property manager.
Collecting lodging tax from guests
Once you’re registered with tax authorities, you are ready to start collecting lodging tax, which you’ll add to your guest’s bill when they pay for their stay.
Which taxes apply to Delaware accommodations?
In Delaware, a number of different lodging taxes may apply to your rental, depending on your location and type of property. These can include:
|Tax Name||Filed and Remitted To|
|State Lodging Tax||Delaware Division of Revenue|
|Local Lodging Tax||Local Tax Authority|
Understanding tax rates
Before you can begin collecting short-term rental taxes, you need to know the correct rate to charge. Rates can and do change frequently, so it’s important to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues. State and local tax authorities should have the latest rates posted. You can also use our lodging tax lookup tool to find the right rates.
What charges are taxable?
In Delaware, all rents received from the occupancy of a room or rooms in a hotel, motel, or tourist home are taxable, as long as the guest does not have the right to occupy the space for five months or more. Rents include charges such as cleaning fees, pet fees, rollaway bed fees, extra person fees, etc. Fees that are refundable, such as damage deposits, are generally not subject to lodging taxes unless you keep the deposit.
What happens when my short-term rental platform (such as Airbnb, HomeAway, or VRBO) collects taxes for me?
Before collecting any short-term rental tax from your guests, you need to be aware of whether any taxes have already been collected for you. Some vacation rental platforms, including Airbnb, HomeAway, and VRBO, collect short-term rental taxes in some locations when the listing is booked. However, platforms do not collect taxes in all locations, and they may not collect all the state and local taxes you owe.
At the time of this guide’s publication, Airbnb, HomeAway, and VRBO do not collect lodging taxes on behalf of their hosts in Delaware.
Are guests ever exempt from taxes?
There are situations in which you aren’t required to collect lodging taxes in Delaware. For example, a guest who rents for at least five consecutive months is exempt from short-term lodging taxes.
In Delaware, accommodations purchased by buyers including employees of the United States government, members of the armed forces, and employees of the State of Delaware and its agencies, including public schools, in the performance of official duties may be exempt from short-term lodging taxes. Guests may be required to present exemption certificates.
Filing lodging tax returns
After you’ve collected taxes from your guests, it’s time to file your tax returns with the Delaware Division of Revenue and local tax jurisdictions. In Delaware, you can file short-term rental tax returns online. In order to file, you will need to enter information on how much you charged for your rentals. You’ll also need to pay the tax amount due, usually via check or electronic transfer. The Delaware Division of Revenue allows credit card payments, but you may be charged convenience fees for this type of payment.
Take the time to double check your returns prior to submitting. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays.
When do I need to file my returns?
You will be assigned a filing frequency and due dates when you register with the tax authority. At the state level, monthly due dates are as follows:
|Filing Frequency||Due Date|
|Monthly||Due the 15th of the month following the close of the filing period.|
We recommend contacting your local tax authority if you have any questions about local lodging tax due dates.
Am I still required to file a tax return if I didn’t rent my property during the filing period?
Yes. Short-term rental operators registered with the Delaware Division of Revenue are required to file returns each assigned filing period, regardless of whether you had any short-term rental income or any short-term rental taxes were collected. Such returns are commonly known as “zero dollar returns.” Local tax authorities may have their own requirements.
Are there penalties for filing taxes late?
Whether you choose to offer short-term rentals through a marketplace like Airbnb or directly to the consumer, you open the door to tax liability at the state and local level. As tax revenue is a major source of local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses not in compliance with local tax laws. Failure to register with tax authorities and file lodging tax returns in Delaware on time may result in late fees, interest payments, and in extreme cases, legal action.
What options do I have if I have been renting without collecting lodging tax?
If you’re already operating a short-term rental but are not collecting applicable lodging taxes, you may be in violation of Delaware tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect taxes.
Short-term rental hosts in Delaware may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Delaware Division of Revenue. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.
Are there options for outsourcing transient occupancy tax filing?
Yes. Many accommodation providers in Delaware file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.