Million-dollar short-term rental tax shortfall questioned

Sussex County tourism officials estimate about $1.3 million in short-term rental tax is missing from state collections, and they’re trying to find out why.

“Right now, what we’re trying to figure out is, if there is a discrepancy, how much, and what the state’s doing,” said Scott Thomas, executive director of Southern Delaware Tourism, who sent a letter Sept. 29 to Delaware Division of Revenue Director Kathy Revel but has yet to receive a response. “If there are any deficits, how can we collectively fix that?”

The August Public Accommodations Tax report shows $1.178 million collected statewide for short-term rentals for June. However, when compared to short-term rental statistics provided by AirDNA – a site that reports AirBnb and vacation rentals by owner transactions – Thomas said estimates should have been about $2.5 million, based on total online short-term rental revenue listed in AirDNA’s June report.

The difference between AirDNA’s estimate and the state’s posted collection for short-term rental tax is about $1.3 million for June alone, he said.

“This discrepancy raises serious concerns about compliance and enforcement in the STR market,” Thomas wrote in the Sept. 29 letter to the Division of Revenue. “Hotels and traditional lodging partners are fully compliant with their tax obligations, and it is imperative that STR platforms and operators are held to the same standard. Failure to capture this revenue not only disadvantages compliant businesses, but also results in significant loss of funding for state priorities.”

In a May 2025 article on the short-term rental tax, a Division of Revenue spokesman said the division “will be using a variety of audit tools and information to ensure all owners of short-term rental property meet their legal obligation.”

Thomas said it’s important that the short-term tax is collected because together with the public accommodations tax, it provides reinvestment into tourism and beach replenishment.

A nearly 6% downturn in hotel occupancies statewide over last year has also impacted reinvestment, with Kent County showing the largest drop at 10%.

Michael Hayes, chair of the Delaware Hotel-Lodging Association, said Sussex County has fared better, with Delaware beach markets down slightly in August. This means less tax revenue from hotels.

“In terms of the short-term rental tax collection, I believe it is important that these fees are collected on time, as both the fees from hotels and short-term rentals go into funding our destination marketing organization Southern Delaware Tourism,” Hayes said. “It's important they have certainty in funding so that they can continue to provide marketing services to help attract new guests to the southern Delaware beaches.”

Revenue earmarks

The bulk of the money collected – 62.5% – goes into the state's general fund, with the remainder going to promote tourism across the state and for beach replenishment. 

State law earmarks 12.5% of tax for a beach preservation fund under the Department of Natural Resources and Environmental Control, and another 12.5% split by county-based tourism and visitor bureaus in Delaware’s three counties. In Sussex County, Southern Delaware Tourism is an umbrella organization for chambers of commerce for Rehoboth Beach, Lewes, Dewey Beach, Fenwick, Millsboro, Georgetown, Milton, Milford and western Sussex.

Thomas said he does not know whether the state uses AirDNA statistics.

“We want to make sure we understand what’s taking place, and why are the numbers different,” he said. “I know Delaware Tourism looks at that, but I don’t know how close the Division of Revenue is looking at it.” 

Thomas says his group is still waiting for an answer from the division.

Neither the Division of Revenue nor Gov. Matt Meyer responded to the Cape Gazette’s request for comment.

“There might be some explanation, but we want to make sure, and that's why we inquired and sent a letter,” Thomas said.