Delaware vacation rental tax guide

With a bounty of popular destinations including Wilmington, Rehoboth Beach, and Dover, the First State offers ample opportunity for short-term rental (STR) businesses.

But these opportunities come with tax obligations. Failure to comply with state and local tax laws can result in fines and penalties. Tax jurisdictions are increasingly making STR tax compliance a priority, so it’s important to address compliance before tax authorities address it for you. 

Avalara MyLodgeTax put together this guide to help you comply with Delaware lodging tax laws at the state level. Local jurisdictions such as cities or counties may have their own lodging tax rules. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.

No lodging tax guide is a substitute for professional tax advice. Consider this 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 taxes are calculated as a percentage of the cost of your guest’s stay and added to the price on the bill. The guest pays the tax, but the STR operator is responsible for collecting and paying it to the proper tax authority.
 

What’s the definition of “short-term rental” in Delaware?

In Delaware, an STR is defined as a house, duplex, multiplex, apartment, condominium, houseboat, trailer, or other residential dwelling unit where a tourist or transient guest rents sleeping or living accommodations for no more than 31 consecutive nights. Casual rentals arranged directly by the property owner where the rent is substantially below market rates and the property is used as a rental for no more than 10 nights per calendar year, are not considered STRs.
 

Location is key to compliance

The location of your rental is a crucial piece of information for lodging tax compliance. Your address determines which tax jurisdictions you’re required to report to, which taxes you need to collect, and the appropriate tax rates.

Use our lodging tax lookup tool to get a rate report specific to your Delaware rental’s 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.
 

Local short-term rental regulations

STR operators in Delaware should be aware of the local regulations that apply to them, including rules covering:

• Legality
• Permits, licenses, and registration
• Zoning
• Advertising
• Neighborhood notification
• Building and housing standards

Homeowner associations (HOAs), condominium communities, co-ops, and landlords may also have specific rules regarding vacation rentals. It’s your responsibility to be aware of STR policies that apply to your property.

Delaware requires an “accommodations intermediary” — defined as any person engaged in the business of facilitating or arranging an STR to an occupant on a website or through other means — to apply for an accommodations intermediary business license and collect and remit lodging tax to the Delaware Division of Revenue. If an STR owner uses a third-party rental listing company such as Airbnb or Vrbo for all STR bookings, the operator isn’t required to register with the state or collect lodging taxes.

Depending on your jurisdiction, you may be required to register with your local tax authority and file local lodging tax returns in addition to state registration and filing.

Once you’ve registered with tax authorities, you’re ready to start collecting lodging taxes, which you’ll add to your guest’s bill when they pay for their stay.
 

Which taxes apply to Delaware short-term rentals?

In Delaware, STRs are subject to state STR lodging tax and may be subject to local lodging tax, depending on location.

Tax rates

Before you can begin collecting lodging taxes, you need to know the correct rate to charge to avoid compliance issues. Our lodging tax lookup tool can give you a rate report specific to your Delaware address.
 

What charges are taxable?

In Delaware, rent received from the occupancy of an STR is taxable. This doesn’t include municipal taxes, linen rental fees, cleaning fees, insurance fees, security deposits, other add-ons not considered rent, or money received from a month-to-month holdover lease. If an STR stay is cancelled, the cancelled portion of the stay is not subject to lodging tax.
 

What happens when my short-term rental marketplace (such as Airbnb or Vrbo) collects taxes for me?  

If an STR operator uses an STR marketplace such as Airbnb or Vrbo for all STR bookings, only the marketplace is required to collect and remit lodging tax. STR operators who book stays directly with guests must collect and remit lodging tax.
 

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 a long term rather than a short term is exempt from  lodging taxes.

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Delaware Division of Revenue. In Delaware, you can file returns online. 
 

When do I need to file my returns?

You’ll be assigned a filing frequency and due dates when you register with the tax authority. For filing with the Delaware Division of Revenue, due dates are as follows:

I didn’t rent my property during this filing period. Am I still required to file a lodging tax return with the Delaware Division of Revenue?

Yes. STR operators registered with the Delaware Division of Revenue are required to file returns each assigned filing period, regardless of whether you had any STR income or collected lodging taxes. 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 STRs through a marketplace like Airbnb or Vrbo, or directly to guests, 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 breaking 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.
 

I’ve been offering short-term rentals without collecting lodging tax. What options do I have?

If you’re already operating an STR but not collecting 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 tax.

STR operators in Delaware may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for operators 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 lodging tax filing?

Yes. Many STR operators in Delaware file several state and local lodging tax returns every year. Filing solutions such as Avalara MyLodgeTax can relieve this burden.