Lewes hotel owners: No lodging tax
The owners of the seven hotels in the City of Lewes are speaking out against a proposed lodging tax that could run as high as 3%.
The tax and a proposed 1% increase in the gross rental receipts tax on short-term rentals were the topics of a Lewes Mayor and City Council public hearing July 1.
Mayor and city council are walking a fine line, looking for a balance between taxation and tourism. Lewes has never had a lodging tax. Rehoboth Beach and Dewey Beach each have 3% lodging taxes.
Former Mayor Ted Becker, managing partner of the Inn at Canal Square, spoke against the tax on behalf of the hotel owners.
“You could actually kill the golden goose,” he said. “We are the envy of the state and surrounding states. Much of that is because of the ambience of this community. Taxation could have an adverse impact.”
Becker said the owner-operated hotels in the city offer a small-town feel that guests cannot get at branded hotels on Route 1.
“Because of competition, the seven hotels have not been able to raise rates to offset increased expenses,” he said. “[Owners] who are already tight on finances would likely open their doors to branded ownership, which would change the whole experience.”
Becker suggested a small property tax increase would generate more revenue than a lodging tax.
Mayor and city council has said the reason for the proposed lodging tax and increase to gross rental receipts tax is two-fold:
• Level the playing field for hotels and short-term rentals. Currently, hotels pay an 8% state lodging tax, while short-terms rental owners pay 5%.
• Create new revenue streams that would fund requests for increased contributions to the Lewes Fire Department, the Fourth Street Preserve campaign and others.
“At what point do we alienate visitors who look elsewhere for their vacations?” said Deputy Mayor Khalil Saliba. “We need to review our tax and fee structure to ensure they are fair and sustainable. Both hotels and short-term rentals should contribute, but at reasonable levels to not alienate visitors to Lewes.”
“If I can’t accommodate someone, I call my friends and neighbors in the hotel community and tell them I have people who want to stay in Lewes. I sure as heck don’t want them traveling off to Route 1,” Block said. “If you asked how many people move to Lewes because of the warmth we give them, you’d be surprised.”
Short-term rental tax
Mayor and city council are also considering a 1% increase in the city’s gross rental receipts tax from 5% to 6%.
Adding into the mix is a 4.5% short-term rental tax that state lawmakers passed at the end of June. It takes effect Jan. 1, 2025.
Saliba said if council does not take any action, short-term rental owners in Lewes will pay an overall tax of 9.5%, while hotels will remain at their current 8% in 2025.
City Manager Ellen Lorraine McCabe said the increase is projected to bring in an additional $90,000 per year.
The gross rental receipts tax was last raised in 2009, from 3% to 5%.
McCabe provided short-term rental revenue numbers for the past five years: FY 2024, $754,120; FY 2023, $777,225; FY 2022, $787,300; FY 2021, $576,900; FY 2020, $558,500.
McCabe said revenue significantly increased in FY 2022, which is the collection of gross rental receipts on rental revenue for calendar year 2021. Comparing FY 2024 to FY 2022, revenues have declined $33,180.
Adriane Gallagher is a rental manager with 250 properties in the Lewes area. She said now is not the time to raise taxes.
“We’re definitely seeing a downturn in rentals,” she said. “There’s more inventory and less demand. I do believe you’re going to take a hit on short-term rental income this year.”
Mayor and city council will take comment on both the lodging tax and gross rental receipts tax proposals until noon, Friday, Aug. 2.
Council will likely discuss the taxes at its regular meeting Monday, Aug. 12.
