Delaware Gross Receipts Tax for Contractors: Rate, Exclusion, and Subcontractor Deductions

Delaware Taxes Gross Revenue, Not Profit

Delaware doesn't have a retail sales tax. Instead, the state levies a Gross Receipts Tax (GRT) on total revenue generated from business activity within the state. For contractors, the GRT rate for the construction classification is 0.6472%.

The critical distinction: this tax is calculated on your gross revenue from Delaware projects — not your net profit. Materials, labor overhead, equipment costs, and subcontractor payments all flow through your gross receipts before any deductions are applied. If you gross $500,000 on a project, the GRT calculation starts from that full amount.

The $100,000 Monthly Exclusion

Contractors receive a monthly exclusion of $100,000 (or $300,000 quarterly, depending on your filing frequency). If your gross receipts in a given month fall below $100,000, your GRT liability for that month is zero.

But here's the trap that catches new contractors: filing is mandatory even when you owe $0. A zero-liability month still requires you to submit a return. Failing to file zero-liability returns can trigger penalties and delay your state business license renewal.

The Division of Revenue determines whether you file monthly or quarterly based on your filing volume.

Subcontractor Deductions via Form 1280

The GRT's biggest relief mechanism for general contractors is the subcontractor deduction. Payments you make to licensed subcontractors can be subtracted from your taxable gross receipts, preventing double taxation on the same revenue.

This deduction is governed by strict rules under Title 30 of the Delaware Code:

Who qualifies: Only independently registered and licensed contractors in Delaware. If your sub doesn't have an active Division of Revenue business license and DOL registration, the deduction doesn't apply — and you're legally required to withhold 20% of their payments.

How to claim it: File Form 1280 ("Payments Made by General Contractors to Subcontractors") with each GRT return. The form requires each subcontractor's name, address, tax identification number, Delaware business license number, and exact payment amount. Then attach Form 1280-DEV ("Deductions for Amounts Paid to Subcontractors") to apply those deductions to your return.

What's not deductible: Material-only purchases cannot be deducted under Form 1280. The subcontractor must provide construction labor, or both labor and materials. Equipment rentals, hauling, trash removal, and professional service fees (architects, attorneys, engineers) are also non-deductible.

The Audit Trail Matters

The Division of Revenue can audit your Form 1280 deductions. If you can't produce documentation proving that each subcontractor was independently licensed at the time of payment, the deduction may be disallowed and the GRT on those amounts becomes due.

Keep copies of each subcontractor's business license and DOL registration on file. Verify their status through the public contractor registry (contractorregistry.delaware.gov) before executing each subcontract. The five minutes this takes per subcontractor is trivial compared to the cost of a reversed deduction during an audit.

Common Filing Errors

Processing delays and audit flags often come from:

• Mismatched EINs between your Form 1280 and the subcontractor's actual registration
• Claiming deductions for subcontractors whose licenses have lapsed
• Deducting material-only purchases (lumber deliveries, equipment rentals)
• Missing zero-liability filings, which create gaps that trigger compliance reviews

Get the Complete Tax Filing Checklist

The GRT and Form 1280 process is one of the ongoing compliance obligations that catches contractors who thought licensing was a one-time event. The Delaware General Contractor License Guide covers the full tax filing workflow alongside the registration and licensing steps.

See more Delaware guides →