Rehoboth Beach Mayor Paul Kuhns has proposed doubling the city’s residential rental tax from 3 percent to 6 percent to help the city pay for upcoming capital improvements.
First considered earlier this year when the city was looking for additional money to pay for finishing City Hall, the measure was not acted upon because the commissioners chose to use money from the city’s reserve fund. Kuhns said the last time the rental tax was raised was in 2004.
Kuhns said rental tax is 9 percent of total revenue and brings in a little more than $1 million. He said by doubling the tax, the city can bring in an additional $1.1 million that could help pay for planned capital improvements. According to a proposed five-year capital improvement plan introduced by City Manager Sharon Lynn, the city would pay $3 million in capital improvement expenses next budget year, much of those improvements being upgrades to the city’s vehicle fleet that have been put off for years. Kuhns said the city will need money going forward for street repaving and Boardwalk maintenance.
“This is one of many revenue sources we’re going to have to look at,” Kuhns said.
He said he wanted an ordinance raising the rental tax in front of the commissioners as soon as possible. Kuhns said after Jan. 1 would be too late, as rental agencies would have already sent out materials with the 3 percent rate. Also in play is the possibility the General Assembly could resurrect a measure that would apply an 8 percent accommodations tax to residential rentals. Kuhns said while it is still uncertain how the state bill would shake out, it is possible that the state measure would not allow the city to raise the rental tax without state approval.
When the bill was being debated in the General Assembly in May, Rep. Pete Schwartzkopf, D-Rehoboth Beach, sought to insert language in the bill that would allow the towns with existing rental taxes, like Rehoboth, to keep their percentage while the state took whatever remained. Kuhns used this as another justification for moving forward on raising the tax if a bill with similar language comes from Dover. If the city’s tax is 3 percent and the state imposes 8 percent, he said, the state would get 5 percent and the city would get 3 percent. If the city tax is 6 percent, the state would take 2 percent, Kuhns said.
“If we are going to raise the rental tax, in whatever amount it is, we need to make a decision as soon as possible to get the information out to the public,” he said.
Commissioner Stan Mills said the city will need to look for additional revenues to maintain city services. He suggested raising the tax by 1.5 percent each year for two years to phase in the increase.
Mills said his constituents are concerned about unlicensed rental units being rented through Airbnb and other online services. He said a rental tax increase should include paying someone to monitor rentals operating without a license. Kuhns said the city code enforcement officer is in the process of checking online rental services for unlicensed rentals.
Commissioner Kathy McGuiness said she wants to know how revenue raised by a tax increase would be spent.
Commissioner Toni Sharp said she supported a rental tax increase, which has been needed for years. Commissioner Jay Lagree also favored increasing the rental tax.
While there is support for the increase, whether an ordinance is passed as fast as Kuhns would like remains to be seen. Commissioner Lisa Schlosser, like McGuiness, wanted to see a summary of where the money raised by the increase would go. Commissioner Patrick Gossett said he supports the increase but would like to see a more formal presentation before voting.
The commissioners will continue discussion at their next meeting, Friday, Nov. 17.