I am writing to express my strong opposition to House Bill 168, which threatens to impose an 8% rental tax on consumers and owners of short-term rentals. I believe this bill poses a significant threat to our local economy, homeowners, guests and workforce.
While proponents argue the bill aims to create equity by applying the same tax to short-term rentals as hotels and motels, it falls short of addressing this issue. Municipalities in our area are already collecting lodging taxes on short-term rentals, with some towns levying up to 6%. When combined with the proposed 8% state tax, this would result in a 14% tax rate for rentals in those municipalities. Additionally, the bill allows for a 3% county tax, meaning unincorporated areas near municipalities would face an 11% tax burden. This disproportional tax structure is far from equitable.
The impact of this bill on our housing market and economy cannot be overstated. Short-term rentals, defined by the bill as rentals of 150 days or fewer, serve a diverse clientele beyond just weekly beachgoers in the summer months. Professionals such as nurses, doctors, researchers and construction workers rely on these rentals to provide critical services to our residents. Imposing an additional burden on rental homes will drive them out of the marketplace, further exacerbating the record-low inventory of available rental homes and hindering businesses in their efforts to house their workforce.
Moreover, Delaware already has the highest real estate transfer tax in the nation, making homeownership unattainable for many. Reducing the rental potential of second homes will only worsen the affordability crisis.
It is crucial to recognize that short-term rentals offer a distinct experience that cannot be replicated in traditional hotels. The proposed tax fails to consider these inherent differences and imposes a tax rate comparable to that of hotels, which is unjust. Money collected from the rentals, an estimated $103 million, will be vastly funneled to the state coffers and other counties while not addressing the issues here in Sussex County of roads maintenance and construction, and public safety. The money is only earmarked for the general fund, beach replenishment (which is mostly federally funded), and local and state tourism boards that are typically non-government agencies.
The ownership of short-term rental properties predominantly lies with private individuals who typically own a single investment property. Unlike larger hotel chains that can account for vacancies, individual owners may struggle to absorb the losses caused by a significant tax increase. Furthermore, the tax could deter guests from affording a visit to our resort area, subsequently reducing their disposable income for spending in local businesses such as restaurants, entertainment venues and retail establishments. This accommodation tax threatens to drive visitors away, negatively impacting our local economy.
I strongly urge our legislators to oppose House Bill 168 and protect our housing industry while supporting our local economy. If implemented as written, this bill would fail to achieve equity among hotels, motels and short-term rentals.
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