Short-term rental tax needed

April 12, 2024

For years, the State of Delaware has struggled to come to an agreement on the taxation of short-term rentals as part of the Public Accommodations Tax. The controversy centers around the perceived unfairness of collecting room tax on hotels but not short-term rentals.

While all visitors to Sussex County hotels pay an 8 percent PAT, as well as municipal taxes and a county tax in unincorporated areas, tourists who stay in B&Bs, campgrounds and short-term rentals do not pay the statewide tax, although some pay municipal accommodations taxes. That creates an unfair advantage for short-term rentals.

Delaware is currently one of only two states in the country that doesn’t tax short-term rentals. It is estimated that over $30 million is being left on the table each year. House Bill 168 aims to correct this. The PAT helps support state-provided recreational infrastructure – such as beaches, parks and public safety services – that so many welcome visitors come to Sussex and Delaware to enjoy. This infrastructure doesn’t pay for itself.

The bill is imperfect, but it's a start. Two issues with this bill will limit its efficacy for those of us in Sussex County.

First, the bill should dole out the funds to each county in proportion to the amount collected by each county. Currently, only 1/8 of the 8% PAT is earmarked and returned to the county tourism offices. As it stands, of the state accommodations taxes collected on Sussex County lodging, 62.5% is placed in the general fund and can be spent on upstate projects.

Second, this bill should create a cap on the maximum percentage municipalities are allowed to tax short-term rentals – as the existing PAT does for hotels – but it does not. Closing this loophole would create a level playing field for all types of lodging across the board.

The economic reinvestment of welcoming and supporting more visitors to our state should not be paid by Delaware residents, but by Delaware visitors via a pass-through tax like the PAT. With future funding for items like beach replenishment in question, HB 168 should be passed to help close the gap on these looming concerns.

  • Editorials are considered and written by Cape Gazette Editorial Board members, including Publisher Chris Rausch, Editor Jen Ellingsworth, News Editor Nick Roth and reporters Ron MacArthur and Chris Flood. 

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