Town Council to Task
Rental Tax Undue Burden
SC Online Content Editor
Business owners in Fenwick Island are questioning the town council's motives in proposing a 7.5 percent rental tax on commercial properties in town.
About 40 people attended a special council meeting on Friday, Oct. 18 on the proposed tax. The meeting also included a related proposal to require owners who rent commercial property to purchase a rental license.
Both moves were announced in July when the council approved a budget that called for a 10 percent property tax increase -- also proposed to make up for the town's estimated $130,000 shortfall for fiscal year 2003.
Finance committee chairman Richard Griffin said the council would have to raise property taxes at least 30 percent if that were the sole measure used to counteract the shortfall. "That seemed like a large increase to us," Griffin said.
He said the council considered about a half-dozen ideas and settled on the rental tax proposal "from a sense of fairness."
Griffin said the council looked at existing taxes and license fees paid by owners of residential rental properties, but not by renters of commercial property, and found the combined rental taxes could bring in as much as $90,000 in revenue for the town.
But Tim Collins, who owns the Ocean Avenue and Southern Exposure stores in Fenwick Island, said he believes the town will see much higher revenues than that if it approves the commercial rental tax.
Collins also said Griffin's comparison between those who rent out residential property and those who rent out commercial property is flawed. He said residential rentals put a bigger burden on the town because they use more services such as police, trash and lifeguards.
Commercial properties, on the other hand, are subject to a different set of challenges, Collins said. Small business owners already struggle to pay year-round rent on stores that are generally open only during the summer months, he said. And although consumers don't pay a sales tax in Delaware, Collins pointed out that business owners must pay a gross receipts tax.
If business owners now find themselves having to foot a 7.5 percent tax, Collins predicted "more stores will probably be vacant."
Collins said other towns along the coast generate revenues in other ways, such as parking meters and other fees.
Council vice president Harry Haon said the town could have raised funds comparable to what the rental tax would if it instituted a business license fee like that of Dewey Beach.
"If you own a restaurant, the minimum license fee is $5,000 -- we could have generated the same money by instituting that on the eight restaurants in town," Haon said.
Collins responded that Fenwick Island's ordinance structure "would never allow a restaurant to generate the type of revenue you have at a Rusty Rudder."
"You're treading on some very precarious waters," Collins said. "I'm not convinced that these things have been thought out."
Bobbi Baker, representing the owners of the Sunshine Plaza shopping center in Fenwick Island, agreed with Collins' assessment of the possible impact on town businesses. She said owners will have to pass the increase on to their tenants.
"That's a pretty stiff percentage increase," she said. "It's already a real struggle to keep them occupied on a year-round basis."
Council member Vicki Carmean read a letter from Ginny Borodulia, an owner of Fenwick Medical Center, in which Borodulia took issue with a variety of council actions. Borodulia's letter to the council pointed to recent revelations that the town's finances have not been properly audited in four years.
Borodulia pointed to several items the council needs to explain in light of the recent completion of some of those audits, including "miscellaneous expenses" totaling $14,000 in 1999, $39,782 in 2000 and $82,525 in 2001. Similar figures for 2002 are not yet available, but Borodulia said, " I shudder to think what it could be and for what."
Borodulia, in a later letter to Sussex County Online, said those figures were actually "$14,000 in 1999, $39,952 in 2000, and an additional $24,210 in 2001".
Council members were visibly upset by Borodulia's letter, as well as the fact that many members of the audience had received copies of it before Carmean read it at the meeting.
Haon and council president Peg Baunchalk declined to respond to Borodulia's charges until they have had a chance to review the letter. When asked to do so by Chris Clark, a resident and business owner, Haon said he would send him a copy of his response.
Resident Elsie Weistling also took the council to task for the lack of audits.
"It had to be a conscious decision not to have an audit for that (time period)," Weistling said. While council members have admitted problems with adminstrative procedures during the period, Weistling would not let them off the hook. "It should not have taken four years to catch up and clear up this process," she said.
In September, council voted to spend up to $1,000 to conduct a financial audit of the police department.
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