Dover council tables action on lodging tax

Sets public hearing and vote for September

DOVER — Dover council voted unanimously Monday night to table an ordinance that would have raised the lodging tax by 3 percent.
They agreed to hold an additional public hearing on Sept. 10 on the matter and put it to a vote on Sept. 23.

A rash of state enabling legislation that would allow counties and municipalities to impose their own lodging taxes sailed through the General Assembly in the final days of the session in late June.
Two separate bills gave the green light to Kent County and the city of Dover each to impose an additional 3 percent lodging tax on hotels, motels and tourist homes on top the 8 percent that the state already charges.

Kent County’s enabling legislation was distinct in that it would impose a tax in both the unincorporated parts of the county and inside municipal jurisdictions.
If both measures were to be implemented, the lodging tax rate inside Dover’s city limits would rise to a combined 14 percent, making it the heaviest hotel tax in the state.

It was also unique in that the legislation allowing it earmarked the lodging tax revenue — an estimated $950,000 — to go to a specific beneficiary: the Kent County Regional Sports Complex Corp., the self-described “nonprofit public/private partnership” that owns the DE Turf sports complex near Frederica.
Dover council appeared poised to pass its measure earlier this month when the council’s Legislative, Finance and Administration Committee voted unanimously to move the ordinance forward.
But they paused Monday night.

During the open forum portion of the meeting, Kent County Tourism Corp. interim president Pete Bradley said the group’s board voted last Thursday to advise both the city and county to slow down implementation.
“We recommend implementing no more than 1 percent increase for the next two years,” he said. “This conservative approach will allow time for hoteliers to collect data to determine the effect the additional tax will have on the industry. Kent County Tourism is recommending a ‘go slow’ approach with the lowest possible enactable tax.”

During discussion of the measure, Councilman Matthew Lindell expressed the idea that perhaps there was a legislative fix in asking lawmakers to address the lodging tax overlap.

However, Councilman David Anderson suggested that the design of Kent County’s proposed lodging tax affecting Dover’s hotels was “intentional.”
“Quite frankly, Milford, Dover and Smyrna happen to have 90 percent of the hotels in the county and unlike in New Castle County and Sussex County, if it applied to only unincorporated areas, very little revenue would be derived for it,” he said.

Nevertheless, it was agreed among councilmen that state senators and representatives for the city’s districts should be invited to the September public hearing.

Though agreeing to delay the discussion, Councilman Tanner Polce dismissed the potential impact of a 6 percent increase in lodging tax on Dover’s hotels.

“I find it very hard to believe that an individual company would be put out of business by even a 3 or 6 percent stacked rate,” he said. “This is a principal I teach to my 300- and 400- level business students, (Councilman Polce teaches business at Wesley College) elasticity versus inelasticity. It’s the same reason why individuals will pay $7.50 to $8 for chewing tobacco but they won’t pay a 5 percent increase for bubble gum.

“Why? Because the good is inelastic, meaning that the consumer is driven by the demand to be using that product.
“My students are able to wrap their heads around this, and I hope that we’ll be able to see the data we have been able to pull demonstrate that even with a 6 percent increase, 3 percent from the city and 3 percent from the county, that it would not, in fact, be the end of the world.”

Sitting in on the meeting, KC Sheth, who owns the Fairfield Inn & Suites and Super 8 Hotel in Dover, strongly disagreed.
“He talked about elasticity and inelasticity, but I also taught economics at Delaware State University,” he said. “I also run hotels and I know what we go through.”

Mr. Sheth said that his business faces an array of rising costs in the form of property tax, electric bills and franchise taxes that put continuous pressure on his ability to stay profitable.
“And, if the economy suffers, the hotel industry is one of the first to feel it — because staying in a hotel just isn’t a requirement,” he said. “It’s elective. If you lose your job, you’re not going to stay at a hotel or travel.
“Tourism is reflective of the economic condition.”

Local business owner Sam Chick, an outspoken critic of both lodging tax proposals, believes Dover tabled the discussion because “people are standing up and saying something about it.”

“I think they’re pumping the brakes because they’re seeing that the county is, too, and this is starting to get a lot of attention,” he said. “I think they realize they need to let the public debate on this happen because Senator (Trey) Paradee and Representative (Sean) Lynn (sponsors on both pieces of enabling legislation) saw to it that there wasn’t a public discussion when they rammed it through the General Assembly in the last days of the session.”

The amended version of Dover’s ordinance to be discussed on Sept. 10 will enable councilmen to vote on a lodging tax “up to” 3 percent and will direct potential revenue to a reserve account rather than earmarking it for a specific purpose.

Other lodging taxes
Dover is one of six municipalities given the authority by the General Assembly this year to impose an additional 3 percent to the state’s lodging tax.

The General Assembly passed legislation that allows Rehoboth Beach, Millville, Georgetown, Seaford and Delaware City to raise that tax now as well, in addition to Sussex County (in the unincorporated areas).
Gov. John Carney signed the county bills on July 17; he signed all the municipal legislation in May and June, except for Millville, which is awaiting his signature. Legislation allowing New Castle County, Newark, and Milford to do so was approved in 2018.

Staff writer Ian Gronau can be reached at 741-8272 or igronau@newszap.com

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