How to Start a Bed and Breakfast, Inn or Hotel in Delaware: 8% Lodging Tax, $25 Per Room License and the 6-Bedroom Hotel Test

Starting a bed and breakfast, inn, or hotel in Delaware involves navigating specific state classifications, licensing requirements, and the state's 8% lodging excise tax. Delaware's regulatory framework divides short-term lodging into distinct categories based on bedroom count, meal service, and guest cooking facilities, each with different license fees and tax implications. Understanding where your property fits in this framework, then getting your business license, collecting the right taxes, and securing your lodging license, are the core steps to launch legally.

What You Need Before You Start: Materials and Prerequisites

Before you file paperwork, gather these essentials:

• A physical property in Delaware with the minimum number of permanent bedrooms (6 for hotels outside incorporated towns, 10 if in town; 5 for tourist homes)
• Proof of ownership or lease agreement for the property
• Workers' compensation insurance if you will have employees
• A Delaware business mailing address (can be your property or a registered agent's address)
• A federal Employer Identification Number (EIN) from the IRS (apply free at irs.gov if you plan to hire staff)
• Confirmation of municipal zoning approval (check with your city or county: some municipalities restrict lodging operations in residential zones)
• A business name and confirmation it is available (search the Delaware Division of Corporations database at https://icis.corp.delaware.gov/Ecorp/EntitySearch/NameSearch.aspx)
• Budget for state and local licenses: at minimum, $15 to $30 per room for your lodging license, depending on your class

Step 1: Understand Delaware's Lodging Classifications and the 6-Bedroom Hotel Test

Delaware law draws sharp distinctions between hotels, motels, tourist homes, and short-term rentals. These categories determine your license fee, whether you are exempt from the gross receipts tax, and which rules apply to operations.

Hotel. A hotel has at least 6 permanent bedrooms (outside incorporated towns) or at least 10 permanent bedrooms (if located in an incorporated town), and serves both sleeping accommodations and meals to guests. The state lodging license costs $25 per room and $30 per suite. If your property is outside an incorporated town, the 6-bedroom threshold means you likely qualify as a hotel. If you are in a town like Wilmington or Newark, you need at least 10 bedrooms.

Tourist Home. A tourist home has at least 5 permanent bedrooms and does not provide guest cooking facilities. Tourist homes pay $15 per room for the lodging license. If your property has 5 to 9 bedrooms and is in a town (where hotels must have 10), you may qualify as a tourist home instead.

Motel. A motel is licensed at $25 per room, the same as a hotel, but the definition typically applies to properties with multiple individual-entry units. Check with the Delaware Division of Revenue (https://revenue.delaware.gov/) if your property straddles categories.

Small Bed and Breakfast. A small B&B with fewer than 5 permanent bedrooms may fall outside the formal hotel, motel, and tourist home classes. Depending on cooking facilities and length of guest stays, your property may fall under the short-term rental rules (a 4.5% state tax on stays that is collected through accommodations intermediaries, not a per-room license fee structure). Contact the Division of Revenue directly to confirm which category applies to your specific property; they will provide clarity on whether you need a lodging license or short-term rental registration.

Key Term: Permanent Bedrooms. The statutes count permanent bedrooms for the use of guests; ask the Division of Revenue how it counts the rooms in your building.

Step 2: Choose Your Business Entity and File Formation Documents

Most owners form a business entity before they apply for licenses. The two most common structures are a Limited Liability Company (LLC) and a Corporation. Each has different formation costs, annual fees, and tax treatment.

Limited Liability Company (LLC). Filing an LLC costs $110 with the Delaware Division of Corporations. LLCs owe a flat annual tax of $400, due June 1 each year (the first payment is due June 1, 2027, and the payment that was due June 1, 2026 was $300; confirm the current amount and due date at https://corp.delaware.gov/ because tax law changes). You can file your Certificate of Formation online using the eCorp Document Upload Service at https://icis.corp.delaware.gov/ecorp2. Processing time varies with volume; the Division does not publish a standard turnaround for routine filings, but you can pay for expedited service (same-day $100, 24-hour or next-business-day $50, two-hour $500, one-hour $1,000 per document). If you want to reserve a name before filing, you can do so for 120 days for $75.

Corporation. Filing a Corporation costs $109. Corporations file an Annual Franchise Tax Report by March 1 each year, and the annual report fee is $50, plus franchise tax (minimum $175 under the authorized shares method). Like LLCs, you file through the eCorp portal at the Division of Corporations.

Registered Agent Requirement. Every Delaware entity must maintain a registered agent with a physical street address in Delaware. The agent can be an individual resident of Delaware or a business entity. Many small businesses hire a registered agent company to serve this function and handle legal documents. Alternatively, if your B&B property is physically located in Delaware, the business can serve as its own registered agent.

For a B&B, an LLC is simpler and lower-cost than a corporation, and the $400 annual tax is a flat fee regardless of revenue.

Step 3: Register Your Business Trade Name (DBA) and Get Your State Business License

Once your entity is formed, register your business name (trade name or DBA) with the Delaware Division of Revenue through the Delaware One Stop portal (https://onestop.delaware.gov). The registration fee is $25 and is a one-time payment; registrations do not expire or renew. You must have an active state business license to register a DBA.

Apply for your state business license through Delaware One Stop at the same time. Hotels, motels and tourist homes are licensed by room count under 30 Del. C. 2301(a) (see Step 5), and other categories carry a $75 annual fee. A small B&B may fall in a different class, so ask the Division of Revenue which applies. The license runs from January 1 to December 31 each year; if you start partway through the year, the fee is prorated by calendar month. Operating without a license carries a fine of up to $3,000 or up to two years in prison, so do not skip this step.

The business license pairs with Delaware's gross receipts tax (not a sales tax; Delaware has no state sales tax). The gross receipts tax rate depends on your license category. Hotels, motels and tourist homes are exempt from the 0.3983% gross receipts fee (see Step 5), while other categories pay a rate set by category. You file monthly or quarterly with a monthly exclusion of $100,000 ($300,000 quarterly). New businesses file quarterly. Check the Division of Revenue rate schedule for your specific license category to confirm your rate.

Step 4: Understand and Prepare to Collect Delaware's 8% Lodging Excise Tax

Delaware imposes an 8% lodging excise tax on all hotel, motel, and tourist home rent. This is separate from your business license and gross receipts tax. The 8% breaks down as follows: 5% to the General Fund, 1% to Beach Preservation, 1% to county convention and visitors bureaus, and 1% to the Delaware Tourism Office. You collect this tax from guests when they pay their room rate.

Who Pays? You, the lodging operator, are responsible for collecting the tax from guests and remitting it to the state. Rent for this purpose includes all receipts for the occupancy, valued in money, with no deductions, and the tax does not apply to a permanent resident who stays at least 5 consecutive months (30 Del. C. 6101).

Filing and Payment. You must file a lodging tax return and remit the tax by the 15th of the month following the month in which you collected it. If payment is late, interest accrues at 1% per month on the unpaid balance.

Example. If you collected $5,000 in room rent in January, your 8% lodging tax is $400. You must file and pay this $400 by February 15. If you miss the deadline and pay on March 15, you owe $400 plus one month of 1% interest ($4), totaling $404.

Sussex County Add-On. If your property is located in Sussex County, you also owe an additional 3% lodging tax on hotel, motel, and B&B rent. Confirm the current rule with Sussex County before you open; press reports describe this revenue as earmarked for beach work. Beach towns (such as Lewes, Rehoboth Beach, and Bethany Beach) may impose their own rental or accommodations taxes on top of the state and county rates. Ask your municipal clerk what additional taxes apply.

Step 5: Apply for Your Delaware Lodging License

For hotels, motels and tourist homes, the per-room fees below are the Division of Revenue business license fees under 30 Del. C. 2301(a).

License Fees by Property Type.

• Hotel: $25 per room and $30 per suite
• Motel: $25 per room
• Tourist home: $15 per room
• RV park: $10 per space

Example Calculation. A 7-bedroom tourist home in New Castle County (outside an incorporated town) would qualify as a tourist home and would owe $15 times 7 rooms = $105 for the lodging license. A 10-bedroom hotel in Wilmington would owe $25 times 10 rooms = $250.

Tax Exemption. Hotels, motels, and tourist homes are exempt from Delaware's 0.3983% gross receipts tax on services and wholesale. Other business license categories do not receive this exemption, so confirm with the Division of Revenue that your license category qualifies.

Apply through Delaware One Stop (https://onestop.delaware.gov). Check with the Division of Revenue for the documents it requires, and see Step 7 for building and safety approvals.

Step 6: Register for and Manage Your Gross Receipts Tax Account

As noted, Delaware does not have a sales tax. Instead, businesses pay a gross receipts tax on their revenue. Ask the Division of Revenue whether your license class owes gross receipts tax.

Verify your account is active and confirm your filing frequency (monthly or quarterly for established businesses; quarterly for new businesses). Hotels, motels and tourist homes are exempt from the 0.3983% gross receipts fee (30 Del. C. 2301(f)). If the Division of Revenue places your B&B in another category, the rate is set by that category, with a monthly exclusion of $100,000 ($300,000 quarterly).

File and pay monthly or quarterly through the Division of Revenue website. Late payments incur interest and penalties.

Step 7: Secure Building Permits, Certificates of Occupancy, and Safety Inspections

Before you can legally operate, your property must pass all building, fire, and health inspections. You will need:

• A Certificate of Occupancy from your city or county building department, confirming that your property is safe for overnight guests
• Proof that all bedrooms meet bedroom size and egress (exit) requirements under the Delaware Building Code
• Fire safety inspection from your local fire marshal
• Health inspection from the Department of Health and Social Services, Division of Public Health, if you serve meals
• If you plan to serve alcohol (beer, wine, spirits), a license from the Office of the Alcoholic Beverage Control Commissioner

Contact your city or county building department to learn the specific inspection schedule. Timing for building review and the Certificate of Occupancy varies by jurisdiction, so ask your building department. Do not collect guests until you have the Certificate of Occupancy in hand.

Step 8: Obtain Workers Compensation Insurance and Other Required Insurance

Delaware law requires that any business with employees provide workers compensation insurance. If you hire staff (housekeeping, front desk, kitchen), you must carry this insurance before they start work. If you operate the B&B solo, workers comp is not legally required, but commercial general liability insurance is strongly recommended to protect against guest injury claims.

Quote insurance through a commercial broker in Delaware. A typical package combines general liability with property coverage on furnishings and equipment; costs vary with guest count and claims history.

Step 9: Hire Staff and Set Up Payroll

Once you have workers compensation insurance in place, you can hire housekeeping, maintenance, or front desk staff. You will need to:

• Enroll in Delaware's Unemployment Insurance (UI) program through the Department of Labor
• Set up payroll withholding for federal and state income taxes
• Provide each employee with a Form W4 to calculate tax withholding
• Register with the Delaware Division of Revenue for income tax withholding
• File quarterly 941 forms (federal) and Delaware UI tax returns, and file annual W2s for each employee

Many small businesses use payroll services (ADP, Paychex, QuickBooks Payroll) to handle this automatically.

Step 10: Plan Your Guest Operations and Ongoing Compliance

Once licensed and insured, you are ready to accept guests. Plan your operations around these key compliance tasks:

• Collect the 8% lodging tax from each guest and file and pay by the 15th of the following month (plus 3% in Sussex County if applicable)
• File and pay gross receipts tax monthly or quarterly
• Keep a ledger of room revenue, nightly rates, and tax collected for audit purposes
• Renew your state business license and lodging license annually by December 31
• Pay your LLC annual tax (or corporation annual report fee) by June 1 (or March 1 for corporations)
• Maintain proof of workers compensation insurance if you have employees
• Request fire, health, and building inspections annually or as required by your city or county

Tips and Common Mistakes to Avoid

Tip 1: Confirm Your Lodging Classification Early. Do not assume your property is a "hotel" or "B&B" without checking with the Division of Revenue first. Bedroom count, meal service, and cooking facilities determine your category, and misclassifying can lead to licensing delays and back taxes. Call the Division of Revenue at the number on https://revenue.delaware.gov/ and describe your property in detail.

Tip 2: Budget for the 8% Lodging Tax Upfront. Many new operators forget that they must collect and remit 8% of revenue to the state by the 15th of the following month. Build this into your nightly rate calculation so you do not end up paying state taxes from operating capital. If you charge $150 per night, $12 of that is lodging tax; plan to reserve it immediately.

Tip 3: Start with Temporary Staff If Possible. Hiring full-time employees triggers payroll withholding, workers comp, and quarterly filings. If you can launch with independent contractors (cleaners, maintenance) or operate alone, you will simplify your first year of compliance. Once you are profitable, bring on staff.

Mistake 1: Operating Without a Certificate of Occupancy. Hosting guests before your property passes building and fire inspection is illegal and exposes you to fines, guest injury liability, and loss of your business license. Wait for the Certificate of Occupancy.

Mistake 2: Forgetting to Renew Your Business License. Delaware business licenses expire on December 31. If you do not renew by January 1, you would be operating without a license, which carries a fine of up to $3,000 or up to two years in prison (30 Del. C. 2119). Set a reminder in October to apply for renewal through Delaware One Stop.

Mistake 3: Mishandling the Lodging Tax. The 8% lodging excise tax is a pass-through tax you collect on behalf of the state. If you spend it on operating expenses and do not remit it by the 15th of the following month, you will owe 1% monthly interest and potential penalties. Open a separate account or reserve an amount equal to 8% of revenue each month.

Mistake 4: Ignoring Municipal Zoning and Tax Codes. Some Delaware municipalities restrict short-term rentals in residential zones or impose their own licensing fees and permits on top of state requirements. Call your city or county clerk before you buy or lease a property to confirm that lodging is permitted.

Expected Results and Timeline

If you follow these steps in order and have no code violations or zoning disputes, here is a realistic timeline:

• Week 1 to 2: Form your LLC ($110 filing fee; the Division of Corporations does not publish a standard turnaround), apply for your state license, register a $25 DBA if you use a trade name, and contact your local building department about Code review and Certificate of Occupancy. Arrange workers compensation insurance and general liability insurance.
• Week 3 to 6: Building and fire inspections occur. Timing depends on your building department and fire marshal. Address any code violations (rare in modern structures, but egress and bedroom size must meet code). You may need to add emergency exits, upgrade smoke detectors, or make HVAC adjustments.
• Week 7: Receive Certificate of Occupancy. Apply for your lodging license through Division of Revenue. Check with the Division of Revenue for current processing times. Set up your lodging tax account.
• Week 8: You can now legally accept guests.

Total cost to launch (excluding property purchase, renovation, and furnishings):

• LLC formation: $110
• DBA registration: $25
• Additional locations, if any: $25 each
• Lodging license: $15 to $30 per room, depending on class (tourist home $15, motel or hotel $25, hotel suite $30)
• Workers compensation insurance (if you have employees): get a quote
• General liability insurance: get a quote
• Building permits and Certificate of Occupancy: check with your municipality
• Total: depends on room count, insurance quotes and municipal fees

Disclaimer

This article is informational and does not constitute legal, tax, or accounting advice. Laws and fee schedules change, and municipal rules vary by town and county. Before you launch, consult a Delaware attorney licensed to practice business law and a certified public accountant (CPA) or tax professional familiar with Delaware short-term rental and lodging rules. The Delaware Small Business Development Center (https://delawaresbdc.org/) offers free confidential advising on business formation and licensing. The SBA's Delaware district office (https://www.sba.gov/district/delaware) also provides startup guidance.