How does Delaware operate without a sales tax? The state’s corporate franchise has it covered

Civics 101 Special Series: The Corporate Capital
Part 3: Delaware prospers from its “franchise”

For over 100 years, a quiet force has been benefiting Delawareans. Few are aware of its presence in their daily life, but its impact reaches every citizen, up and down the state.

That force, the state’s corporate franchise industry, stands as a significant pillar of Delaware’s financial stability, just as it has since 1899. Each year, it brings billions of dollars of revenue into the state, easing the burden on taxpayers, and ensuring that services to Delawareans stay strong.

Today, as that reliable revenue stream faces challenges from outside the state, more Delawareans are understanding the real-world benefits of being the nation’s “Corporate Capital.” And they’re deciding it’s a title worth defending.

Recent events have shown that Delaware’s prominence can’t be taken for granted. The corporate franchise is the industry that allows Delaware to be the home of tax-free shopping. It supports local schools. It supports infrastructure. It supports community organizations. It brings high-paying jobs (and the associated income tax revenue) to Delaware along with a well-educated workforce– and it keeps them here. 

Recent state budgets speak to the significant revenue impact of the state’s franchise industry, which attracts millions of companies to incorporate here and pay Delaware various taxes and fees, in return for access to Delaware’s expert Chancery Court and Secretary of State’s Division of Corporations.

Corporate franchise taxes and related fees typically generate 25% to 30% of Delaware’s General Fund revenue, totaling $1.8 billion to $1.9 billion annually. Most of that revenue comes from corporations – $1.32 billion in 2025. Another $522 million comes from alternative business entities – Limited Liability Companies (LLCs) and Limited Partnerships (LPs).

A stable and reliable source of revenue

Those revenue streams give Delaware a highly predictable budget baseline – one that’s more resilient to economic turbulence, and less reliant on taxing Delawareans.

As one of the single largest funding sources for state government, the corporate franchise supports education, healthcare, transportation, and public safety. It’s a revenue stream that the state has come to rely on, and Delawareans continue to benefit from and it comes largely from corporations outside of the state. The cash generated by the corporate franchise is a key reason Delaware is still one of just five states that operate without a general sales tax.

Much of the revenue generated by the corporate franchise industry flows into Delaware’s General Fund. That corporate revenue helps the state cover a broad range of costs, from health insurance coverage for low-income Delawareans, to public safety improvements. It’s also used to help strengthen the state’s “Rainy Day Fund,” a financial safety net that helps the state avoid cuts to services or tax hikes when the economy lags.

“The success of Delaware’s corporate franchise benefits everyone in the state, from small-business owners to homeowners who enjoy some of the lowest property taxes in the region,” said Rod Ward, president and chief executive officer of Delaware-based Corporation Service Company, a world leader for business, legal, and financial services. “Protecting this legacy is not just a business priority; it is a responsibility that touches every citizen of the First State.”

Companies pay to access our expertise

Here’s how that revenue-generating, low-maintenance system works: Each year, the 2.2 million corporations and other similar entities that are incorporated here pay annual taxes and filing fees to the Delaware Division of Corporations, which oversees business formations and filings. Those annual taxes include the corporate franchise tax paid by corporations and an annual tax paid by LPs, LLCs and general partnerships. 

In addition to these annual taxes, some of the businesses pay filing fees in connection with:

• The incorporation or formation of new entities
• Filings that are required with certain actions such as amendments, mergers and conversions.

Delaware’s corporate franchise industry also has its own corporate ecosystem within the state that generates substantial indirect revenue for Delaware through related industries, from hotels to service vendors to restaurants. The workforce energy of Delaware’s corporate franchise goes far beyond well-tailored attorneys – thousands of people in Delaware work in support of the industry or in jobs that exist because of the industry. 

The Delaware Court of Chancery plays a central role in this ecosystem. While court filing fees are modest, the court’s national reputation for expertise, speed, and predictability gives companies confidence that disputes will be resolved fairly and efficiently.

One law has led to an ecosystem of jobs

That confidence in Delaware also means jobs for Delaware. Thousands support the industry in high-paying jobs in technology, accounting, compliance, and corporate services. That in turn generates more revenue, from personal income taxes, gross receipts taxes, and business taxes. The corporate activity also supports bank franchise taxes, commercial real estate development, and hospitality revenue tied to legal proceedings and business travel – visiting law firms are one of the primary elements of Wilmington’s hospitality industry.

Another major indirect source of corporate revenue is abandoned property, known as “escheat.” Delaware routinely collects unclaimed property held by corporations, such as dormant accounts and uncashed checks. In recent years, escheat revenue has exceeded $500 million annually, making it one of the state’s largest non-tax revenue sources.

Indirect sources of revenue – such as escheat, income taxes from legal and corporate services, business and banking taxes – add more than $1 billion to the state’s budget, meaning the total impact of Delaware’s corporate franchise industry is close to $3 billion.

In addition, Delaware’s two law schools — Widener University Delaware Law School and the newer Wilmington University Farnan School of Law — play an important role in educating lawyers, supporting the state’s courts, and reinforcing Delaware’s position as the nation’s corporate and business law hub. 

Because corporate franchise revenue accounts for such a large share of the state budget, Delaware’s fiscal health continues to be closely tied to its status as the nation’s leading incorporation state. Legal stability, predictable rules, and confidence in the court system are widely viewed as essential to maintaining that status.

For residents, the impact of living in a state without corporate franchise revenue is more practical –taxes would fall directly on individuals and make funding for core services challenging.

State officials and legal experts warn that Delaware’s longstanding revenue model is not guaranteed. Competition from other states poses potential risks to Delaware’s dominance as the nation’s corporate home. Because the Delaware Court of Chancery underpins corporate confidence in the state, maintaining its independence, expertise, and technological capability is essential. Continued investment in the court, protecting the corporate law from political influence, and adapting the law and practices in Delaware to emerging business and legal trends are necessary steps to safeguard one of Delaware’s most critical and enduring revenue sources.

Delaware’s emergence as the leading domicile for corporations was not just an act of history. It was not like finding oil underneath the state. It’s the result of careful tending and cultivation by generations of corporate leaders and government officials. Protecting that legacy as the leading domicile is critical to Delaware and will continue to pay substantial dividends to all Delawareans.