Lewes discusses short-term rental tax hike

April 30, 2024 12

Lewes Mayor and City Council is considering raising the gross rental receipts tax from 5% to 6% on short-term rentals.

That hike would be on top of an 8% state lodging tax contained in House Bill 168, which the state Legislature is expected to pass before June 30.

“Someone is going to look at that and say, ‘Wow, Lewes has gone out of control. Maybe I should look somewhere else,’” said Deputy Mayor Khalil Saliba at council’s April 25 workshop.

City officials had considered the gross rental receipts tax increase during its budget process in February, but it needs to pass an ordinance to enact the increase.

By not passing that ordinance earlier in the year, the city might have to hold off implementing the tax until 2025, because rental contracts for this year have already been signed based on the 5% tax.

Cole and Tonya Flickinger rent their house on Cedar Avenue, and they said they did not know the city was considering the increase.

“With proper notice and time to incorporate it into rental operations, we would probably support it. Shouldn’t the active rental license holders have received notice?” Cole said.

The city defines short-term rentals as 30 days or shorter; long-term rentals are longer than 30 days. Right now, it does not distinguish between the two when collecting the gross rental receipts tax. The tax is collected on the total amount a property owner collects at the end of a calendar year.

Julie Hart said she has been renting her house for 30 years. She told council she is already being impacted by skyrocketing insurance costs, which forced her to increase her prices this year.

“Four of my renters dropped out – four out of nine,” Hart said. “If I can’t rent, I won’t be paying those taxes.”

Adriane Gallagher, manager of the Lewes Rental Department for Berkshire Hathaway HomeServices PenFed Realty, urged council to use caution on anything that could drive people away.

“There was such a demand during the COVID years; renters would pay just about anything,” she said. “Those prices are starting to even out now. Folks aren’t coming here in the droves they were before.”

Mayor and city council also discussed a possible city lodging tax, which could be up to 3%.

“The [state] introduced the 8% short-term tax because hotels wanted a balanced playing field,” said Mayor Andrew Williams. “This might be a way for us to even it up for short-term [rentals] in Lewes.”

Rehoboth Beach has a 3% lodging tax. Bethany Beach’s is 3.25%.

Williams said this is a critical time for the city to bring in extra revenue.

“We need to expedite our water and sewer projects, delayed maintenance in general,” he said. “The fire department asked us for $600,000. There’s beach nourishment. We’re looking ahead and shoring up our resources.”

Mayor and city council will continue discussion of both taxes at a future meeting.