By Rob Kunzig | Aug 10, 2010 | Cape Gazette
Dewey Beach officials were pleasantly surprised last year when a new tax on rental properties exceeded revenue expectations by $26,000. Months later, the second collection was a mirror image of underperformance: the town only received $826, missing its mark by $26,000.
The loss was reflected on May’s profit-and-loss report, presented at the July 8 budget and finance committee meeting. The tax, which takes 3 percent of rental income, is collected in April and October. Budget and finance committee Chairman Marc Appelbaum said this was the town’s first time collecting a winter accommodations tax – it was hard to anticipate an amount without supportive data.
“We didn’t have any kind of barometer,” he said. “We were guessing, because we didn’t have any historical data. We may have over-projected.”
If a down economy encouraged people to stay at home, the weather kept them there. Town Manager Diana Smith said two snowstorms in February probably killed whatever off-season vacations Dewey might have hosted.
“There were two blizzards,” she said. “We need to take that into account. Nobody’s going to drive out here with 2 feet of snow on the ground.”
Joy Howell, who owns two rental properties, said the off-season is typically a slack time in Dewey, because owners prefer to use the properties themselves.
“Most owners I know use their places in the winter and the shoulder season,” she said.
Town officials suspect not all who rent pay the accommodations tax or even buy a rental license.
Smith said some property owners circumvent the process altogether by listing their properties on classifieds website craigslist.org and vrbo.org (Vacation Rentals By Owner). It’s hard to force these renters to buy a license and pay a tax, she said, especially if they keep a low profile by renting only once or twice a year.
Smith said town officials are trolling sites like craigslist to sniff out illicit rentals and bring them into compliance. They’ve only found a few so far, she said.
“It’s probable that we’ll find more,” she said. Many rentals post an email address instead of a physical address, forcing officials to get creative. “We’re having to dig a little deeper,” she said.
Appelbaum said the town was lax in reminding property owners the winter tax was due.
“I think they need gentle reminders,” he said. “I’m not sure we reminded people in a way that garnered the response we were looking for.”
He said the accommodations tax accounts for roughly 15 percent of Dewey’s revenue. Despite the $26,000 blow, he said, Dewey’s revenue is still outpacing its expenses for the first quarter of fiscal year 2010-11.
Summer rentals slumping
“Rentals are down in Dewey Beach this year,” said Sharon Palmer, vice president of Coldwell Banker, one of the biggest rental agencies operating in Dewey. Visitors are increasingly willing to lodge out-of-town.
“People are trying to save money,” she said. “They’re just taking shorter stays. Instead of spending a week, they’re staying three days.”
She said visitors are lured to condos, townhouses and apartments on the outskirts of Dewey and Rehoboth Beach. Developments such as Sanibel Village, Captiva Sands and Rehoboth Crossing are newer and offer more amenities than the average beach bungalow. When considering the tradeoff of luxury for a short drive into town, Palmer said, many are willing to hop in the car.
“When we first started, half these properties didn’t have TVs, didn’t have telephones,” Palmer said. “People don’t tolerate that anymore. Renters have to be at the top of their game.”
She said news of political infighting could also be a deterring factor.
“It’s crazy,” she said. “People don’t want to get involved in all that.”
Howell said her tenants took longer to make up their minds. In years past, her properties were fully booked by March. This year, she said, she didn’t fill her calendar until June.
“It seems people took longer to make up their minds and commit,” she said.
Of the 38 years Ken Lodge has been renting his property, he said 2010 has been the slowest. He keeps a roster of approximately 100 clients; this year, he said, only two rented. He said their reasons for not returning ranged from economic to social – some wanted to save, but others didn’t want to contend with Dewey’s active nightlife.
Regionally, Palmer said, Coldwell Banker is having a good year. “We’re located in a perfect spot,” she said. “We’re so close to several major metropolitan areas.”