Beach towns say they feel targeted by proposed rental tax

Date Published: 
May 5, 2017

Anyone who owns a vacation rental property in Delaware might be facing a new occupancy tax. The Delaware State Legislature is considering a new 8 percent tax on short-term vacation rental units.

The issue is a particular concern for some coastal towns because they’re already charging that much as a municipal tax, so property owners could be looking up to 16 percent in taxes, between their towns and the State.

House Bill 130 would add “short-term rental” units to the 8 percent tax on the rent assessed on every occupancy of a room or rooms. Hotels, motels and tourist homes already pay the tax.

“Short-term rentals are defined as being a room, dwelling, unit, or campground site being rented to overnight guests for a period of 120 days or less for any calendar year and the room or unit is not the owner’s permanent residence,” the bill synopsizes.

Tax revenues benefit the State General Fund (5 percent); beach replenishment and maintenance (1 percent); Delaware Tourism Office (1 percent); and the designated convention/visitors bureau in each county (1 percent).

“Many beach communities already impose a city or town tax on these rentals in varying amounts. Bethany’s is 7 percent, providing $1,136,000 of our revenue each year, which basically goes to support our beach activities and taking care of what goes on here during the summer months,” said Bethany Beach Mayor Jack Gordon.

Fenwick Island’s 7.5 percent tax raises about $275,000 for that town.

South Bethany’s 8 percent tax raises about $520,000 there.

Outside the beach communities, most people “had no idea that one-third of our revenue” is rental taxes, said South Bethany Councilwoman Sue Callaway.

“I’m not sure whether Seaford or Milford or other places have substantial rentals like we do in this category,” Gordon said. “Therefore the [increase], as presented, in my opinion, is a way to support the State, but it’s zeroed in localities that, right now, do a lot for tourism for the state and the state budget.”

Tourism employs tens of thousands of people and raises millions of dollars in revenue. Some council members said they felt the State is looking to balance its budget on the backs of towns that make the tourism industry thrive.

Bethany Beach Vice-Mayor Lew Killmer said he also found it “shortsighted” to suggest that Delawareans won’t be impacted. Although property owners could raise rental rates to compensate, that makes their properties less attractive to guests. Plus, northern Delawareans sometimes rent beach houses, so they’d be among those who would pay the additional tax.

Vacation houses can sometimes charge thousands of dollars for a week’s rental in summer — and people pay it.

“This is like a targeted tax, and why not do a broader-spectrum, like a gas tax or a sales tax?” Voveris said.

“You can’t compare a hotel in Wilmington to a homeowner in South Bethany that rents five or six weeks a year,” said Callaway, although she noted there’s a difference between smaller vacation units and some major beachfront operations.

That kind of scale can put them on the level with hotels and motels that are also in the business of letting rooms. Often, people renting out houses use the rental fees to supplement their income, or even to pay the mortgage on the property until they can retire fulltime.

South Bethany Councilman Don Boteler suggested that the proposal might not have much support among other state legislators or the Sussex County Association of Towns.

Local Realtors and business owners have pointed out that maintenance, Realtor commissions and other fees already eat a huge chunk of rental income. Plus, they argued, if cigarette and alcohol taxes help discourage vices, then a rental tax will discourage vacationers, which would hurt other businesses.

HB 130 is sponsored by New Castle County legislators House Minority Whip Deborah Hudson (R-12), Rep. John A. Kowalko (D-25) and Rep. Helene M. Keeley (D-3), who chairs the House Revenue & Finance Committee.

Additional sponsor Senate Minority Leader F. Gary Simpson’s (R-18) representatives a district that stretches from Slaughter Beach though Milford, Ellendale, Harrington and west.

Details about House Bill 130 are online at www.legis.delaware.gov/BillDetail?legislationId=25648.