Short-term rentals escape hotel tax

Officials struggle with method to collect money across the board
June 4, 2019

While all visitors to Sussex County hotels and motels pay an 8 percent statewide public accommodations tax, tourists who stay in bed and breakfasts, campgrounds and short-term rentals such as Airbnbs, do not pay the statewide tax, although some pay municipal accommodations taxes.

According to the law, hotels are facilities with six rooms or more. Hotels and motels in Rehoboth Beach do not pay a separate municipal lodging tax; however, the city charges a tax on short-term rentals.

Most coastal cities and towns have their own accommodations tax on short-term rentals ranging from 2 percent to 8 percent with funds going to support municipal services and infrastructure. Other cities in the Cape Region with a short-term rental tax include Lewes, Dewey Beach and Bethany Beach.

Legislation has been drafted and introduced by Sen. Ernie Lopez, R-Lewes, and House Speaker Rep. Pete Schwartzkopf, D-Rehoboth Beach, to give Rehoboth officials the authority to enact a city lodgings tax on hotels and tourist homes not to exceed 3 percent.

Under legislation passed last year, visitors to hotels in New Castle County pay an additional 3 percent tax for a total of 11 percent with the funds going directly to county coffers. The law excluded Sussex County and Kent County from the taxing authority.

Sussex County Administrator Todd Lawson said it's time to talk about the issue. “We need to bring equity back into the conversation and look at how to tap into rentals,” he said.

Scott Thomas, executive director of Southern Delaware Tourism, agrees. “We have to stay competitive but also invest in tourism. Equalization is very important to consider,” he said.

“We will be seeing legislation that addresses the issue of equity. I've been involved in many of those conversations,” Lopez said.

Tourism generates $1.7 billion a year in Sussex County and supports 18,000 jobs. Tourists spend about $250 million annually on hotels, but more than $1.2 billion on rentals in Sussex County.

Beach replenishment tied to tax

Most of the statewide 8 percent tax, 5 percent, goes to the state general fund; 1 percent goes to the Delaware Department of Natural Resources and Environmental Control beach replenishment program; 1 percent to the Delaware Tourism Office; and 1 percent is split between chambers and visitor's bureaus. About $16 million per year is raised through the tax.

Lawson said the beach is the major drawing card to bring visitors to the county, and the accommodations tax is the main source of revenue for beach replenishment. “It's not enough. It won't even touch a big replenishment project,” he said.

Thomas said even though the money is used to match federal funds for replenishment, it's getting more and more difficult to get federal dollars.

A bill introduced by Rep. Deborah Hudson, R-Fairthorne, to tax other lodgings was defeated last year.

The state lodging association is looking for another sponsor for similar legislation this session to tax short-term rentals. Twenty other states have a lodging tax in some form on short-term rentals, including New Jersey, Maryland, Pennsylvania, New York and North Carolina.

Thomas said it's important to keep the current accommodations tax in place but to include other places where visitors are staying, not just hotels. Thomas said the hot-button issue right now is how to collect taxes from Airbnb lodgings, which are growing throughout the county. “But there are others. It's being looked at state by state,” he said.

Airbnb collects taxes in other states, including Pennsylvania, and has supported previous legislation. In Delaware, 1,100 Airbnb rentals collected more than $13 million in revenue in 2018. Nearly 90 percent of Airbnb rentals are in Sussex County.

Worth the conversation

Lawson said there was not much political support for the 3 percent tax in Sussex County. “County council would have to determine if there is a need for an additional tax and where the money would go,” he said. “This is worth the conversation.”

Lopez said no Sussex officials approached him or any other legislator that he is aware of to include Sussex County in the legislation. “It was strictly on behalf of New Castle County government. There was never any conversation to make it statewide,” he said.

Options could include big-ticket items such as roads and public safety, he said. Public safety is the county's top expense in each year's budget. And during the county's comprehensive plan workshops and public hearings, planning and zoning commissioners and council discussed the possibility of establishing a county transportation fund to supplement the state transportation trust fund.


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