Rehoboth Beach doubles residential rental tax starting Jan. 1

Rehoboth Beach Commissioners have voted to double the residential rental tax starting in the New Year.

The vote at the Nov. 17 meeting will increase the tax from 3 percent to 6 percent and will be effective Jan. 1, 2018. Rental contracts signed prior to Jan. 1, 2018 will be at the previous 3 percent.

"I was very much pushing back until going through the budget process; however, I think our mayor has listened to public comment, he has been very transparent, I think now it is the right thing to do in that it is not retroactive and we put it in place Jan. 1," said Commissioner Lisa Schlosser.

The move comes after the Rehoboth Beach Commission brought up the idea at the Nov. 6 workshop meeting and was done to ensure the city did not need to dip into its reserve funds in the next year.

The vote was 6-0-1, with only Commissioner Kathy McGuiness, who wanted the funds generated from the tax to go to a specific line item, abstaining.

The move will generate $2.2 million in additional revenue for the town and help offset the cost of services, such as beach cleaning and trash pickup downtown and along the beach and the boardwalk.

At 3 percent, the rental tax is 9 percent of Rehoboth's annual operating budget, not including water and sewer.

To the south, Bethany Beach has a residential rental tax of 7.5 percent, generating 26 percent of the town's less than $8 million budget.

In Rehoboth, the 3 percent tax generated $1.1 million, while in Bethany it generates $1.8 million.

The increase approved differed from the one proposed by Mayor Paul Kuhns at the Nov. 6 commissioners meeting in that originally it would have taken effect immediately.

Prior to the Nov. 17 meeting, Kuhns changed the proposal for the new tax to take effect Dec. 1.

Commissioner Stan Mills, worried about what implementing the tax increase too early would mean for renters, proposed delaying the implementation until Jan. 1, 2018.

BACKGROUND: Rehoboth Beach considers raising rental tax

"I would think we would need an education program," Mills said. "Is Dec. 1 enough time to inform the landlords? I would say no."

The other commissioners chimed in their support for the proposal, and the commission came to a consensus to change the start date.

While public comments at the meeting were mostly supportive of the proposal, not everyone was happy.

Members of the real estate community made their opposition known.

"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.

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However, at the Nov. 17 meeting prior to the vote, Sharon Palmer with Coldwell Banker in Rehoboth Beach struck a different tone.

She said that, while the real estate community would be opposed, she said she understands why the measure would need to be put in place.

"Our rentals, our tourism industry, is all we have in Sussex unless you want to pluck chickens for a living," she said.

Mayor Kuhns said at the Nov. 6 meeting that they wanted to discuss and vote on raising the residential rental tax as soon as possible to give renters more time to prepare for the change in the tax.

The commissioners knew, though, that the increase was only the first step to righting the city's financial ship.

Other increases should be expected, Kuhns said.

"This $1 million we will get is only the beginning," said Commissioner Jay Lagree.

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