Rehoboth Beach considers raising rental tax

Renters in Rehoboth Beach might be seeing a price increase.

At the Rehoboth Beach commissioners meeting on Nov. 6, the commission discussed raising the residential rental tax to 6 percent from its current level of 3 percent, an idea that concerns some Rehoboth Beach businesses.

"It would almost certainly impact renters negatively," said Gene Lawson, a lawyer in Rehoboth Beach, in a phone call after the Nov. 6 meeting. Lawson represents Mann and Sons Inc., a Rehoboth Beach real estate company that rents properties in the summer.

"This is coming out of the clear blue because people are already sending out their rental agreements for next year and they have no clue, and it puts them at a disadvantage," he said. 

However, Rehoboth Beach Mayor Paul Kuhns said at the Nov. 6 meeting that by discussing the rental tax before budget season begins, they are hoping to give renters more time to prepare for the change in the tax.

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Going from 3 percent to 6 percent would help generate $2.2 million in revenue, Kuhns said, and it would help offset the cost of services such as beach cleaning and trash pickup downtown and along the beach and the boardwalk.

"The way I look at the rental tax as it is right now on the books, it is approximately 9 percent of our annual operating budget, not including water and sewer," Kuhns said.

If passed, the increase would take effect Jan. 1.

To the south, Bethany Beach has a residential rental tax of 7.5 percent, Kuhns said, and with a budget of less than $8 million, the town's rental tax generates 26 percent of its budget.

The 3 percent rental tax in Rehoboth Beach generates $1.1 million. In Bethany, with fewer rentals, the rental tax generates $1.8 million.

Based on the previous year's budget, there is enough justification to raise revenue, said Commissioner Stan Mills.

Unless anything has changed, Mills said, they need to make a concerted effort to plan ahead and know where they stand financially, and raising this tax would help the city do this.

However, his proposal differed from Kuhns'.

"I would throw out there discussion of raising the rental accommodations tax 1.5 percent per year for two years to start," he said. "And we have to gauge it, because year two we might only need 1 percent more. We need to target where our money is."

Portions of the money generated by the rental tax should also go to monitor renters "who are not paying their fair share" by using services such as Airbnb, he added.

But rental companies are concerned about why the increase is happening.

Jo-Ann Bacher, a rental manager and associate broker for Jack Lingo Realtor, said the company is opposed to the increase.

"We are opposed to the tax because it is for all the wrong reasons," she said. She declined to comment any further.

Commissioner Kathy McGuiness said she understands that the city needs the money, but there are different areas from which it can get the money.

She also said questions need to be answered about where the money would go.

"I’m usually not in favor of just raising taxes," she said. "So I would like to define what we are going to do and what areas we are going to cut."

In response, Kuhns said if they want to designate money raised by the increase in the tax for certain projects, they should be able to do that.

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This increase is about preparing to provide services to which visitors and homeowners have grown accustomed, he added, and if it does not get this additional $1.1 million, the city will have to take an additional $1 million out of the general fund. 

This is something the commissioners need to vote on soon, Kuhns said, and he is hopeful they will be able to do that at the next commissioners meeting on Nov. 17.

"I would much rather have the opportunity for the city manager to get together with the communications manager to put together a press release, and that's stuff we can't really do until we vote," Kuhns said. "If we vote at the December meeting, all that information probably gets out into the first week in January. I would like to see this information get out faster."

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