Delaware's scenic coastlines and charming communities have made it a popular vacation rental destination. For property owners capitalizing on this demand through short-term rentals (STRs), understanding the associated tax obligations is critical for compliance and profitability. Navigating Delaware short-term rental tax requirements involves state-level taxes and potentially local regulations.

If you’re considering investing in a short-term rental in Delaware, the best team to work with is STR Search. Their team has helped 100s of investors successfully identify and purchase the best short-term rentals and set them up for success.

This guide will walk hosts and investors through tax considerations for operating an STR in Delaware. It covers the Delaware Public Accommodations Tax, the primary tax impacting operators, along with registration, collection, remittance, and compliance. If you are already hosting or considering investing in a Delaware property, this information will help you operate legally and efficiently.

What a Short-Term Rental is for Tax Purposes in Delaware

The first step in determining your tax obligations is understanding if your property qualifies as a short-term rental under Delaware law.

According to Delaware Code Title 30, Chapter 61, the Public Accommodations Tax applies to "any hotel, motel, or tourist home offering 6 or more rooms to the public." The law also considers "rooms or other space for lodging in a hotel, motel, tourist home, guest house, or similar establishment" as taxable when rented for less than a week. This definition includes most typical STR setups, including rooms, apartments, condos, and entire houses offered through platforms like Airbnb and VRBO for short-term stays.

Delaware STR Taxes: State and Local Considerations

Delaware STR tax compliance revolves around the statewide Delaware Public Accommodations Tax, which applies uniformly. Unlike states with complex tax structures, Delaware's system is clear-cut.

Research confirms that Delaware's three counties (New Castle, Kent, and Sussex) do not impose separate lodging taxes on top of the state tax. However, hosts should be aware that specific municipalities may have additional requirements, fees, or taxes.

This guide includes:

• State Public Accommodations Tax

• Registration & Licensing

• Collection & Remittance

• Compliance & Record Keeping

The Delaware Public Accommodations Tax

The Delaware Public Accommodations Tax is the state's primary tax on transient lodging, governed by Title 30, Chapter 61 of the Delaware Code. This tax applies to stays of less than one week and supports the state's general fund. Under Delaware law, "transient" refers to guests staying for temporary, short-term periods (less than one week).

Who Must Collect and Remit This Tax?

Property owners, operators, or managers receiving payment for qualifying short-term accommodations are responsible for collecting and remitting this tax. As of 2024, major platforms like Airbnb and VRBO collect and remit the Delaware Public Accommodations Tax on behalf of hosts. However, even when they handle the tax collection, hosts remain responsible for compliance with all laws and may need to obtain the appropriate business licenses. If you use smaller platforms or direct booking methods, you need to handle tax collection and remittance yourself.

What is the Current Tax Rate?

The Delaware Public Accommodations Tax rate is 8% of the accommodation rent or fees. This tax applies to the total rental charge, including mandatory cleaning fees (but typically excluding optional services).

If you charge $200 per night for your rental plus a $75 cleaning fee, the taxable amount would be $275. The tax would be calculated as:

$275 × 8% = $22 in Public Accommodations Tax

Any Exemptions?

Few exemptions to the Delaware Public Accommodations Tax apply to STR operators. The length-of-stay threshold is the most relevant for hosts: rentals for continuous periods of one week or longer are not subject to this tax as they are considered longer-term accommodations rather than transient lodging.

Other exemptions apply to specific situations unlikely to affect typical STR operations, such as accommodations provided by the state, educational institutions, or religious organizations for their main purposes.

Do Counties or Cities Impose Additional STR Taxes in Delaware?

Delaware's three counties, New Castle, Kent, and Sussex, do not impose separate lodging or accommodation taxes. This means STR operators aren't required to collect county-specific lodging taxes beyond the state's 8% Public Accommodations Tax.

Municipal (City/Town) Taxes

While counties don't add lodging taxes, specific Delaware cities or towns have their own requirements, fees, or permits for short-term rentals. Local ordinances governing rental properties exist in popular STR destinations like Rehoboth Beach, Bethany Beach, Lewes, and Dewey Beach.

Rehoboth Beach requires rental property owners to obtain a business license and pay annual rental license fees, though these aren’t technically taxes. Other beach communities have their own requirements.

Advice: Always contact the finance department or clerk's office of the municipality where your rental property is located. Search for "[City Name] Finance Department" or visit the official city website for local short-term rental requirements.

Getting Started: Registration and Licensing for Your Delaware STR

To legally collect and remit the Public Accommodations Tax, register your business with the Delaware Division of Revenue through the One Stop Business Registration and Licensing System.

Key steps include:

1. Create an account on the Delaware One Stop portal.

2. Choose the appropriate business structure (LLC, sole proprietorship, etc.)

3. Register for the Public Accommodations Tax

4. Provide your Federal Employer Identification Number (EIN) or Social Security Number (SSN), business name, physical location, and mailing address.

After registration, you'll receive a business tax account number for filing returns and making payments.

Delaware Business License Requirements

In Delaware, operating an STR is considered a business activity requiring a state license, separate from your tax registration. You can obtain it through the Delaware One Stop portal. The specific category for STR operations falls under "Residential Rental Business" or a similar classification.

In addition to the state business license, many Delaware municipalities require their own business or rental licenses. For example, if you operate an STR in Rehoboth Beach, you need a city business license in addition to your state license. Check with your city's government to ensure you meet all local licensing requirements.

Collecting and Remitting Delaware STR Taxes

Host Responsibilities vs. Marketplace Facilitators

Delaware law recognizes marketplace facilitators (like Airbnb and VRBO) and requires them to collect and remit the Public Accommodations Tax on behalf of hosts. If you exclusively use major platforms for your bookings, they handle the tax collection automatically.

Hosts should be mindful that:

1. You are responsible for ensuring proper tax compliance.

2. If you accept direct bookings or use smaller platforms without automatic tax collection, you must collect and remit the tax.

3. Even if platforms collect the tax, you still need to file returns (often "zero" showing the platforms handled collection).

4. You need to maintain records of all bookings, including documentation that platforms collected and remitted the appropriate taxes.

Filing Tax Returns and Payments

Delaware Public Accommodations Tax returns are filed monthly and are due by the 20th of the following month. For example, June’s taxes must be reported and paid by July 20th.

File electronically through the Delaware Division of Revenue's online tax portal or submit form 9901A (Public Accommodations Tax Return). You'll need to report:

1. Total gross rental receipts during the reporting period

2. Any exempt transactions (for example, rentals over a week)

3. Taxable receipts

4. Tax collected (8% of taxable receipts)

Payments can be made electronically through direct debit via the online portal or by check if filing a paper return. If no tax is due (because all bookings were through platforms that collected the tax), you still need to file a "zero" return to remain compliant.

Staying Compliant: Record Keeping and Penalties

Maintaining thorough records is essential for STR tax compliance in Delaware. Hosts should keep the following documentation for at least three years:

• Detailed booking records (dates, guest information, length of stay)

• All rental income received (itemized by booking)

• Documentation of guest tax collections

• Receipts or confirmation of state tax payment

• Documentation from platforms showing their collection/remittance of taxes for you.

• Copies of all submitted tax returns

• Business and rental license documentation

Failure to register, collect, or remit taxes can result in significant penalties. The Delaware Division of Revenue may impose penalties of up to 5% of the tax due per month (maximum 50%) for late filing, plus interest charges. Willful non-compliance can lead to more severe penalties, including potential misdemeanor charges for operating without proper licensing.

Proper compliance is essential for business health and protecting your investment. Tax issues can complicate property sales or refinancing and trigger broader audits.

Tax Deductions and Financial Considerations for Delaware STR Owners

STR owners may qualify for federal tax deductions to offset income and reduce tax liability. Common deductions include mortgage interest, property taxes, insurance premiums, maintenance costs, utilities, furnishings, cleaning services, and property management fees. You can also deduct depreciation on the property and its contents.

From a state perspective, the Delaware Public Accommodations Tax you collect and remit isn't an expense to your business (since you're collecting it from guests), but business license fees, property taxes, and income taxes are generally deductible on your federal return.

When evaluating the profitability of an STR investment in Delaware, it’s important to understand the full tax picture, including accommodations taxes, property taxes, income taxes, and potential deductions. These considerations should be factored into your financial projections when evaluating STR investment potential.

How STR Search Helps Investors Navigate Complex Markets

Understanding Delaware short-term rental tax requirements is crucial for successful STR investing. STR Search helps investors identify high-performing properties using advanced data analytics. Their approach considers market potential, occupancy trends, operating costs, and regulatory landscapes including tax implications to identify those with the highest return potential.

STR Search helps high W-2 earners optimize their investment portfolios with strategically selected properties that balance income potential with tax advantages, using a data-driven methodology. This removes uncertainty in market selection and property acquisition.

Conclusion

To navigate Delaware's short-term rental tax landscape, you must understand the state's 8% Public Accommodations Tax, register through Delaware One Stop, ensure proper state and local business licensing, and maintain meticulous records. Major platforms handle tax collection for hosts, but the ultimate compliance responsibility remains with property owners.

It is important to stay informed about Delaware short-term rental tax requirements for legal operation, cost projection, and profitability. Refer to the official Delaware Division of Revenue website for the latest forms, rates, and procedures, and consult a tax professional specializing in rental property taxation to optimize your situation.

By managing these tax obligations, you build a strong foundation for successful short-term rental investing in the First State.