Small Business Reading Room

Monday, July 11, 2005

Internet sales in Delaware

We live in an age of e-commerce.
In fact, many of our clients have web based businesses.

A big concern of many internet businesses right now is an idea that is gaining popularity with many states- an Internet Sales Tax.

They have reason to be concerned.
As many as 42 States are working on a way to try to make this idea a reality in one way or another. 18 states are currently working on provisions to encourage online retailers to collect some form of Web taxes through the Streamlined Sales Tax Project.

We all know that Delaware has no sales tax.
So, what is the deal with sales made over the internet in Delaware?

While only an accountant can give you specific advice on tax matters (we are not accountants here at Delaware Intercorp, Inc.), there is some information out there that can help you with planning your internet business in Delaware. I found some great info that the Delaware Division of Revenue has published on their website.

Here's some highlights:

Establishing an Internet Site

At the present time, Delaware's position on the issue of establishing an Internet site is that persons conducting business via the Internet are not treated any differently than persons conducting business by traditional means. The Due Process and Commerce Clause provisions of the U.S. Constitution require that there be a minimal contact or presence in the taxing jurisdiction by the business. There are many activities - too many to list here - which create the jurisdictional right to tax, referred to as "nexus". It is our position that merely creating an Internet site by a non-Delaware business does not, by itself, create nexus. But, locating a server in Delaware would create nexus/jurisdiction to tax the respective business.

Frequently Asked Questions

Q. Are there any tax laws in Delaware that apply to electronic commerce transactions?

A. No.


Q. Do any statutes in Delaware apply specifically to electronic software distribution (i.e. downloaded) over the Internet?

A. No.


Q. Do any statutes in Delaware apply specifically to the purchase of goods ordered over the Internet and received in tangible form?

A. No.


Q. Is there any liability placed on the buyer or vendor of downloaded software over the Internet? Is electronically distributed software considered tangible personal property? And what liabilities are placed on the buyer and vendor of tangible goods over the Internet?

A. It is our current thinking that the mere use of the Internet as a vehicle for selling tangible property or intangible personal property will not create nexus in the market state. Since Delaware does not have a sales tax, the purchase of software will not create a tax liability for the purchaser.


Q. Are services performed over the Internet, such as providing financial information for a fee, subject to sales tax? What tax rate and state would be used? Is the tax rate based upon where the service is performed or where to whom it applies?

A. Chapter 23 of Title 30 of the Delaware Code imposes a license fee and gross receipts tax on various services rendered within the state. It is our unpublished opinion with respect to services provided via the Internet, that such services are determined by the location of the server or mainframe from which such information was accessed.

You can view the entire page on this subject and find out who to contact at the Division of Revenue for more information on Internet Taxes in Delaware at the Division of Revenue website.

This information may sound pretty good if you have a web-based business, but you want to be sure that you familiarize yourself on the other types of taxes that all business transacting business within the this state are responsible for - Corporate Income Tax & Gross Receipts Tax.

Talk it over with your tax advisor and see if Delaware makes sense for your internet business.

link to Atom Feed




Delaware Intercorp, Inc.
113 Barksdale Professional center
Newark, DE 19711-3258

"For all the best reasons to incorporate,the best place
is Delaware and the best incorporator is
Delaware Intercorp!"

Call Monday - Friday 09:00 (am) - 17:00 (pm) Eastern Time (GMT-05:00)

Toll Free - USA only - 888.324.1817
International: (1) 302.266.9367
FAX: 302.266.9940