New Sussex County lodging tax triggers criticism, concerns

GEORGETOWN – Sussex County in January 2020 will begin collecting a 3-percent lodging tax, new taxation that drew concerns during public hearing testimony Tuesday prior to county council’s unanimous adoption of the ordinance.

Delaware General Assembly’s passage this past June of House Bill 228 empowered Sussex County to pass an ordinance to collect up to 3 percent tax of the rent for any room in a hotel, motel or tourist home defined in Delaware Code in unincorporated areas of the county.
One of the major beefs in Tuesday’s testimony: unfair taxation playing field.

“I’m not per se opposed to the 3 percent. But what I am opposed to is the state’s definition of what a tourist home is,” said Julie Cummings, owner of hotel in Fenwick Island.

Title 30 of Delaware Code currently defines tourist home as any person who operates a place where tourists or transient guests, for a consideration, may obtain sleeping accommodations and which has at least five permanent bedrooms for the use of tourists or transient guests, but which does not have cooking facilities for the use of tourists or transient guests. Short-term rentals are not affected by the lodging tax ordinance.

“Condos don’t collect anything. Campgrounds collect nothing. Air B & Bs, any short-term rentals collect nothing. But yet they all use the beaches. They are all beneficiaries of the tourism programs. For 30 years I’ve collected, first six percent for the state, then eight percent for the state, and now they want me to collect three percent for the county.”

“I’m an independent, not a box chain so I don’t have the perks that the box motels. I have been paying eight percent to the state for years,” said Cory Johnston, owner of the Anchorage Motel on Coastal Highway. “Make it an even playing field.

“When I look at this extra tax coming on, I already pay 15 percent for booking Expedia to travel sites. I’m going to another 11 percent on with the three percent that is going to be added on, so that’s 26 percent I’ve got to put on my guests. It’s a burden to my guests. And I actually care about my guests and how much I charge them.”

Adopted by council, 5-0
County council voted 5-0 in adopting the ordinance to levy a lodging tax of 3 percent. This is in addition to the 8 percent accommodations tax already collected by the state of Delaware.
The lodging tax would impact 40-plus venues in unincorporated Sussex County.

According to estimates from Sussex County Finance Director Gina Jennings, the tax will generate about $1.3 million annually. This money would be placed in a lockbox and be only utilized for specified projects spell out in the legislation. It would be determined during the annual budget process.

“This is what makes our legislation very unique,” said Sussex County Administrator Todd Lawson. “It can only be applied on projects within Sussex County related the capital and operating costs for these seven categories directly pulled from legislation: beach nourishment, waterway dredging, economic development, tourism programs, recreational activities, water quality projects and flood control projects.”

Funding is tentatively earmarked for waterway dredging. “That will be our recommendation … in years to come to focus expenditure on projects that qualify for a waterway dredging,” said Mr. Lawson.
Mr. Lawson said he and staff, Ms. Jennings and Sussex County Engineer Hans Medlarz have met with DNREC staff “already and identified projects within Sussex County and within the Inland Bays watershed that would qualify for waterway dredging. The idea would be that we would partner and provide cost-sharing funding with the agency to help with these projects.”
Greenwood resident Daniel Kramer opposes the tax.

‘No excuse’ for the tax
“Why are we taxing for something we truly don’t need? You have surplus monies in the budget. There is absolutely no excuse for this money — not one dime.
“If you were broke, it would be a different story by a longshot,” said Mr. Kramer. “You’re going to take this money and right now you want to kiss DNREC, right off the top … the worst place you could put the money.”
Ms. Cummings said she emailed Rep. Pete Schwartzkopf and Sen. Gerald Hocker, co-sponsors of HB 228.

“I don’t understand why this is coming to you before they change the definition for what a tourist home is to include everyone. It just doesn’t seem fair to me. Commercial hotel lodging industry is already under tremendous pressure from the Air B & Bs, especially. They don’t have to pay any type of a licensing fee.,” Ms. Cummings said.

“The state in my opinion is biting the hand that feeds it. We’re the ones collecting the money, but yet they turn around and are giving the condos, the campgrounds and the Air B & Bs an unfair competitive advantage against the hotels and motels.

“I think personally you should send it back to them and you should tell them until they are ready to start to institute some type of fee on all of the other short-term rentals, I am opposed to it.”
“Obviously, if I am forced to do it, I will do it,” Ms. Cummings said. “But I think you are making a mistake by accepting it the way it is written right now.”

Taxes higher than Ocean City
Reinie Thompson of the Rehoboth Brach Hampton Inn noted the county lodging tax and state accommodations tax total 11 percent, which is higher than Ocean City. She also referred to the impact with the influx of new motels and hotels.
“Adding the saturation in, we’re now going to go from where we had nice shoulder seasons to where we are going to unfortunately be much more of a seasonal area,” Ms. Thompson said.

“I agree with a lot of the comments,” said Scott Thomas, Executive Director of Southern Delaware Tourism. “I think we have a lot of future vision to do with the way we’re going to fund Sussex county tourism. With hotels in mind, we have to be very conscious of what other areas in the region are charging by way of hotel tax.

“We definitely want to make sure we stay competitive. You might not think it matters with a lot of the leisure travelers that come here but the groups that come in, they pay very close attention to what these hotel taxes are.”
Mr. Thomas added that motels and hotels “are being asked to fund the bulk of the tourism effort statewide right now.”

‘Visitors help share cost’
“You are not going to hear me support a tax increase very often while I am here, I hope,” said Councilman John Rieley.
“But, in this instance we’re asking our visitors to help share the cost of maintaining the infrastructure, the dredging, the things that make the area attractive and make people want to come here.

“The point about short-term rentals, Air B & Bs, is well taken and bears review and I believe actually that is in the pipeline and being discussed.”
“I think the county is in need of more services all the time,” said Councilman Doug Hudson. “The wear and tear on our county infrastructure, the roads, things like that is a factor, and these taxes will help pay for that.”

Councilmen Samuel Wilson Jr., Irwin G Burton II and Michael Vincent made it unanimous.
“These seven things that are lock-boxed with this tax are seven things that the people are coming to Sussex County to enjoy,” said Mr. Burton. “The maintenance on these seven things is not cheap. Without maintaining them I don’t think we’ll have the same tourist draw.
“So, it’s a chicken and egg thing. I hear the concern — the level playing field — is upside-down. I agree with Mr. Rieley that there is quite a bit of movement to level the playing field in any way that we can. I have faith in the county being able to lockbox this money and the council to be able to use it for the good that it is to have for us.”

“I think everybody up here has heard the testimony and taken it to heart,” said Mr. Vincent. “I think we are all concerned about Sussex County and keeping people coming here.

“Not in my district, but in Mr. Rieley’s, Mr. Burton’s and Mr. Hudson’s, I have certainly heard people many times complain about dredging, lack of dredging and no money to do dredging, and people come here to use boats and use the water. Hopefully, we’ll do a good job with this and use it properly.”

The county will collect the tax through a monthly payment voucher and qualified lodging venues will be made aware of the process in time for the process to begin, said Mr. Lawson.

The legislation authorizes up to 5 percent of tax collected be used for administrative costs.
Mr. Lawson added that another method of collections may loom in the fall of 2020 when the state modifies its software for its collections.

“The county’s intent is to join the state when they collect their accommodations (8 percent) tax throughout the state,” he said. “The county will piggyback on that collections process and we will do away with the monthly voucher. The state would then pay the county the appropriate money.”

Regarding this potential collection process, Mr. Lawson said there have been “positive conversations” with state Department of Finance.

Lodging tax across the state
State legislation also cleared the way for up to 3-percent lodging tax in Kent County, and several incorporated municipalities, including Georgetown, Seaford, Rehoboth Beach, Millville, Dover and Delaware City.

The town of Georgetown’s three-percent lodging tax was adopted in July and scheduled to go into effect Nov. 1.

City of Seaford and Rehoboth governing bodies both adopted a three-lodging tax effective Jan. 1, 2020. Millville in June approved a charter change allowing the town to collect lodging tax, up to three percent.

City of Dover in September approved a one-half percent lodging tax, effective July 1, 2020. The city’s lodging tax will increase incrementally to 1.5 percent by 2022.

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