Rehoboth to raise tax on residential rentals

Ordinance to take effect Jan. 1
November 21, 2017

The Rehoboth Beach commissioners unanimously approved an increase of the city’s residential rental tax from 3 percent to 6 percent.

The increase will go into effect Jan. 1 and is expected to bring the city $1 million, additional revenue the commissioners plan to use toward capital improvements such as upgrades to the Wilmington Avenue storm drains and drainage systems on Bayard Avenue. 

The new tax rate would apply to any rental contracts signed after Jan. 1, a move the commissioners said would be fair to renters who have already signed contracts under the old 3 percent rate. The rental tax, formally known as the gross receipts rental tax, has not been increased since 1995, when the rate was set at 3 percent. The tax is assessed on rental income from residential properties.

The idea to increase the residential rental tax was discussed during budget talks earlier this year, as a way to plug a $1 million hole needed to finish City Hall. The commissioners eventually declined to raise the tax and instead took $1 million out of the city’s reserve fund. The idea was brought back, championed by Mayor Paul Kuhns, as the commissioners embarked on drafting a five-year capital improvement plan. The plan calls for significant projects, such as upgrading aging city vehicles and drainage improvements on Bayard Avenue, which since 2012 has seen flooding during heavy rainstorms.

Commissioner Jay Lagree said he supported the increase to fund needed improvements. Commissioner Stan Mills said he wanted to wait until budget talks begin in January to identify all needed funds and all sources of revenue at one time. Commissioners Kathy McGuiness and Lisa Schlosser were lukewarm on the measure at first, but Schlosser supported the ordinance with the Jan. 1 start date because of the city’s need for new revenues. McGuiness, who abstained from voting, said she did not want to see the money raised by the increase go into the city’s general fund, but instead into a separate fund where it could be tracked. Commissioners Toni Sharp and Patrick Gossett supported the ordinance all along; Sharp said she saw no downside to increasing the tax. Sharp also wanted to see rental license database information posted online. 

Public speakers were largely supportive. Rehoboth residents Donna Mabry and Bunky Markert were in favor of the ordinance, saying it was fair and reasonable for visitors using city services.

Rental agent Sharon Palmer-Stauffer said while renters oppose any increase, the tax increase will likely not make much difference to renters. She said wanted to make sure the funds were not spent in a wasteful manner.

Rehoboth resident Kevin Maguire questioned the timing. He said he did not think the ordinance was going to solve the city’s revenue needs. 

Although the ordinance passed, Kuhns said additional work needs to be done to clarify language related to long-term rentals, defined as rentals longer than 120 days.