Dewey officials look to tax gross receipts

Business owners call for property tax
February 19, 2013

Dewey Beach spends more money than it brings in, and budget officials say a tax on gross revenues from businesses in town is the best way to solve budget woes.

Dewey Beach Budget and Finance Committee held a meeting, Feb. 16, to explain its rationale for a gross receipts tax and hear what members of the community thought of the proposal.

Most of those who testified represented businesses and were opposed to the tax.

Committee member Mike Dunmyer made a case for the proposal, which he said would only be established by a referendum vote.  “We need a new revenue source,” he said.

Town operating expenditures are largely fixed, Dunmyer said.  “Lifeguards have already been significantly reduced."

The culture of the town requires a round-the-clock police force, and the staff at town hall is skeletal, he said.  “The town staff is not large and has not had a raise in several years."

The town’s legal fees are an expense that budget officials have come to expect, and Dunmyer said there is no reason to think they will go down.

Dunmyer also said town revenues come largely from summer tourists, and funds vary depending on weather, the economy and bad behavior.  He said the town makes $500,000 each year in fines.

According to the committee’s calculation, Dunmyer said, in-town commercial businesses contribute less than any other group to the town’s annual revenue – 3 percent.  Businesses would contribute 14 percent if a gross receipts tax were established, he said.

Businesses that make less than a certain amount per year would be exempt from the tax under the proposal.  Dunmyer said the threshold for exemption could be anywhere from $100,000 to $250,000 per year.

The proposal also would not apply to businesses, such as hotels, that already pay an accommodations tax.

The maximum amount eligible business would be taxed is 3 percent, Dunmyer said.  Town council could decide on a yearly basis to charge a gross receipts tax from 0 percent to 3 percent.

Businesses also would not have to make their profits public, Dunmyer said.  He said the town would hire a certified public accountant, who would collect payments from all businesses, combine them and give one lump check to the town.

Dunmyer said, if a 2 percent gross receipts tax and a $150,000 exemption threshold were applied to a business that brought in $180,000 in gross receipts, the business would be taxed only on $30,000 and pay only $600 to the town.

The state of Delaware charges a gross receipts tax of anywhere from 0.1 percent to 0.75 percent, remitted monthly or quarterly, depending on the business.

Many business owners who are also residents said they would be happier with a townwide property tax than a gross receipts tax.

Ken Miller, who owns a convenience store in Dewey Beach, said he was concerned about the exemption threshold being too low.  “I’m a small business; my gross receipts go over $100,000,” he said.

Miller said he uses 75 percent of his gross receipts to pay for goods.  After insurance, payroll and other fees, he said, his profit is 10 percent or less.  Not every business is making a small fortune, he said.  “I should be paying more as a property owner,” Miller said.

Business owner and former Mayor Bruce Valvala said it was unfair to compare a gross receipts tax on businesses to an accommodations tax on property owners who rent.  The person who rents the house, not the property owner, Valvala said, pays the accommodations tax.  “This gross receipts tax is coming off every business’s bottom line,” he said.

Valvala said the town should either establish a property tax or cut back on police and lifeguard services.

Rob Marshall, owner of Atlantic Oceanside Motel, said property owners who rent their houses are businesses that often require police services.  “They don’t care that they rent to June bugs for example,” he said.  “There needs to be some payment for that.”

Marshall said he would be more willing to pay a property tax.  “Every other community has some sort of tax,” he said.

“It’s difficult to maintain a business in town,” Marshall said.  “Our margins are close.”

Steve Spence, attorney for Highway One, which owns several businesses in town, including Rusty Rudder and Bottle and Cork, said Dewey Beach is putting itself in legal jeopardy by establishing a gross receipts tax.

“This is just a tax on the restaurants and bars,” he said.

David King, former chairman of the budget committee, said he does not think the town has the authority to create the tax.  “There’s cause for significant challenge,” he said.

King said if the committee wants to establish the tax, it would call for a change in the town charter.

Highway One employee Martha Sweeney said the committee failed to account for the cost of insurance and debt service.  “A tax of this sort does not address that at the end of the day and at the end of the year the bottom line may be negative,” she said.

Sweeney said in-town businesses have a small window during which they can make a profit.  “It’s getting harder and harder for us,” she said.  “Now, we’re only open five months a year.”

Sweeney said if a 2 percent gross receipts tax were established, it would force some of Highway One’s six businesses to close.

Committee member Joan Claybrook asked Sweeney what she suggested Dewey Beach do to solve its structural deficit.

“A property tax, like every other municipality of its size,” Sweeney said.

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