Postpone vote on Dewey gross receipts tax

July 19, 2013

The following letter was sent to the Dewey Beach commissioners with a copy submitted to the Cape Gazette for publication.

On behalf of the Starboard and my involvement with the Delaware Restaurant Association, we wanted to share with you some information to dispute some of the things being said recently by officials in Dewey Beach and clarify some of the information being put out.

“All these restaurants and bars make huge profits; they can afford to pay.”

According to the 2010 Operations Report by the National Restaurant Association, the national average restaurant profit margin is between two and six percent of gross sales. Net profits in a small business are used to pay owners, investors, buy new equipment, invest in building improvements, etc.

The proposed gross receipts tax of between one and three percent would have a major impact on the average restaurant. For example, an average restaurant with gross sales of $1,000,000 has a net profit of somewhere between $20,000 to $60,000. A gross receipts tax of three percent (after the proposed allowance of $200,000 in sales) would total $24,000 which is between 40 and 120 percent of the net profits. A gross receipts tax of one percent (after an allowance of $200,000 in sales) would total $8,000, between 13 and 40 percent of the net profits. With this background, is it not surprising that business owners have reacted strongly and have sought legal advice. This gross receipt tax could take away more than half of a business’s net profits!

Pass this through to the customers; they will pay.”

This assumption ignores basic business principles. Every business raises its prices as high as the market will bear. It is a reasonable assumption, that if the market would bear a one to three percent increase in prices, it would already be charged. Additionally unlike a sales tax or an accommodations tax, a gross receipts tax cannot be shown on a menu, a sales receipt or a bill. It is a tax on the business and not on the customer.

“The restaurants and bars in Dewey should pay for the additional cost of police.”

It has been suggested that the Town of Dewey Beach police budget is a financial burden on the town budget because of the crowds generated by the longstanding nightlife component of the town. Some with this perspective say that the restaurants and bars should “pay” for the added cost of police. At the July 12 town council meeting, a member of CPD suggested that Dewey Beach should be compared to Fenwick Island, a beach town of similar size, which has a significantly lower budget for police. This is a fair question.

According to the 2013 budgets, the Dewey Beach Police budget is $1.2 million out of an overall Dewey town budget of $2.4.  The Fenwick Island Police budget uses $470,000 out of the overall town budget of $1.5. So it makes sense that the nightlife component in Dewey means that restaurants and bars should pay for this difference in expense…However, as business owners we know that budgets are not just made up of expenses! We also need to examine the income side of the budget before assigning costs.

Police departments have a direct effect on revenues. Traffic fines, parking meter fines, town ordinance fines, parking permit fines all contribute real revenues to the town’s bank account. Parking meter revenues and parking permit revenues also depend on police enforcement to make them viable. In other words, if police did not write tickets for parking violations, no one would buy parking permits or put money in the meter.

The Fenwick budget for revenues assigns $61,200 in revenue to police related sources (penalties, vehicle violations, parking violations, and parking permits). If you factor the revenues and the expenses of the Fenwick police ($438,522), the net cost of the Fenwick Police Department to the town is $377,322.

The Dewey Beach budget for revenues assigns $1,062,058.00 in revenues to police related sources. If you factor the revenues and the expenses of Dewey Beach Police ($1,250,063), the net cost of Dewey Police to the town is just $187,563.

When you compare Dewey Beach to its most similar local beach town (Fenwick Island) the Dewey Beach police department has a net cost $190,000 less than the Fenwick police department.

With such an expensive police budget (when looking at net cost), how does Fenwick Island pay for its police department and other town services? The most obvious difference is the first item of the Fenwick Island revenue budget: property tax revenue of $646,364.

If you live in Dewey Beach, park in your driveway, and don’t rent out, renovate, or sell your home, you don’t really have to pay a nickel for town services; the police will come to your house every time you call them, the lifeguards will rescue you, your family members, or your guests every time you get in trouble in the surf, and the town administration and staff will work year round to improve and beautify your town.

"The voters have said no to a property tax."

It is true that in recent years, Dewey Beach passed the accommodations tax referendum and voted against a property tax. Of course, it is difficult to convince people to vote for a tax they would have to pay. This is especially true when town is well run and is operating with a surplus.

Many things that are fair and right are difficult to do. For years there have been very loud voices in the town screaming that the nightlife component is the reason revenues are needed and that these millionaire business owners should be paying their fair share. Perhaps these voices could start a different crusade.

What would the voters of Dewey Beach say to the following: Would you support a modest property tax (with appropriate caps) of between $100 to $300 paid by homeowners and businesses alike to fund the town operations, including lifeguards and year round police?

I can speak for our one business in town; we are not at all against paying more money if this town wants true fair share. I understand where the money comes from, understand the business side of Dewey Beach clearly after 12 years on the Dewey Audit Committee.

Hopefully this information helps you realize that any rush to push a gross receipts tax through in the next week will do nothing but create more issues between the town and its businesses rather than sitting down at an off-peak time to work together so both sides gain a better understanding on how we can all live together in this amazing resort town.

The town will be in jeopardy of more legal battles with the facts that have been put on the table and not thoroughly thought out. There is mis-information being stated by town officials, and at the end of the day, a town manager stating the town is in good financial shape currently.

If you want to truly spend the time to work with the town’s business community to come up with a mechanism for financial stability, we suggest you delay any vote until the October when there is the time to work together.

Steve ‘Monty’ Montgomery
The Starboard
Dewey Beach

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