Why Should Delaware Care?
Sussex County is home to Delaware’s beaches, which draw tens of thousands of tourists every year and many of whom are increasingly staying at thousands of short-term rental homes. A new tax proposal would directly impact those visitors and owner-operators of the units.
Sussex County is the latest jurisdiction to address the growth of short-term rentals in the state, proposing to extend its lodging tax to the homes listed on major websites like Airbnb and VRBO.
Unlike other areas, however, the proposal could draw more scrutiny in the southernmost county, where more than 1,000 homes were listed for rent on Airbnb for June 2025 stays.
The 3% county tax has been collected on hotels, motels and tourist homes in the unincorporated areas of the county since 2020, and has totaled $3.4 million in proceeds, according to Gina Jennings, finance director for Sussex County.
The recent signing of House Substitute 2 for House Bill 168, however, created a new regulatory process and 4.5% state lodging tax on short-term rentals, effective Jan. 1, 2025. That is just more than half of the state’s 8% lodging tax on hotels and motels.
The legislation also allowed New Castle and Sussex counties the ability to concurrently charge its own lodging tax on short-term rentals, which includes houses, duplexes, multiplexes, apartments, condominiums, houseboats, trailers, or any other residential dwelling unit where a tourist or transient guest rents sleeping or living accommodations for no more than 31 consecutive nights.
Sussex County’s lodging tax proceeds are required to be used for the capital and operating costs of beach nourishment, waterway dredging, economic development, tourism programs, recreational activities, and water quality and flood control projects.
At the council council’s Oct. 29 meeting where ordinance was introduced, Jennings noted that about half of lodging tax proceeds to date were used to pay for the dredging of the White Creek Canal and Fenwick Island channels.
The public will have a chance to comment on the proposed ordinance at the county council’s Dec. 10 meeting.
Hotels, tourism have pushed for parity
For at least five years, the hotel industry and tourism offices around the state have called for short-term rentals to be taxed, citing it both as an issue of fairness and proper funding of marketing and natural resource efforts.
“The Delaware Hotel & Lodging Association has been the sole producer of beach replenishment and infrastructure funding, and tourism marketing for the past several decades. It’s time for change,” said Ben Gray, a past chair of the DHLA, in a 2023 committee hearing for the state bill.
Proceeds of the state’s lodging tax, which totaled more than $28 million in 2022, are divided among four funds, with 62.5% going to the state’s general fund, 12.5% going toward the beach preservation program, 12.5% going to the local direct marketing organization (DMO) for each county, and 12.5% to the statewide Delaware Tourism Office.
“The dramatic increase in short-term rentals in Sussex County over the past decade continues to increase the lodging tax and inequity between hotels, motels and short-term rentals. Under current lodging business definitions, Delaware is doing itself a disservice by not including STRs in its tax reinvestment toward promoting and supporting its $4 billion tourism economy,” added Scott Thomas, the tourism director for Sussex County.
Platforms seek fair taxation
Before the passage of HB 168 this year, Delaware was one of just three states that didn’t tax short-term rentals like it does for hotel rooms, joining Alaska and California – where Airbnb is headquartered – as the holdouts.
After a decade in business, Airbnb has come to expect that taxation would come to the First State too.
“Airbnb has been an advocate of fair, streamlined tax collection laws that help governments generate tax revenue from travel across short-term rental platforms. For many years, we’ve partnered with governments around the world to collect and remit tourism taxes on behalf of Hosts, which in turn supports local economies,” the company said in a statement to Spotlight Delaware in April, regarding the state proposal.
The company does note the impact that it has on the local economy, however, including into Sussex County’s primary tourism economy.
In 2023, Airbnb helped generate approximately $147 million in direct and indirect economic impact, according to its estimates. That included an estimated 1,800 jobs supported by guest spending, which in turn generated approximately $83 million in income for local workers, and nearly $65 million in host earnings.
Make Your Voice Heard
The Sussex County Council will meet at 9 a.m. Tuesday, Dec. 10, at the County Administrative Offices at 2 The Circle in Georgetown. Remote access is also available here and public comment will be taken remotely by calling Conference Number: 1-302-394-5036 Conference Code: 570176. To see the agenda, click here.
