Cape May Endorses Room Tax for Whole House Rentals

CAPE MAY — City Council passed a resolution Tue. Sept. 21 supporting state legislation that would require owners of whole house rentals to pay room tax.
The city’s Tourism Commission is also endorsing pending State Assembly Bill A-2657. Mayor Edward J. Mahaney Jr. said the bill would change the methodology for collecting room tax in resort municipalities.
Instead of hotels/motels and bed and breakfast inns (B&Bs) collecting a 14 percent tax, the bill would substitute a 5 percent sales tax with a 2 percent occupancy tax, which would come back to the city, said the mayor. The city would be required to use 33 percent of the collected funds for tourism marketing and promotion, he said.
The room tax would be extended to include whole house rentals and condominiums and “create a more level playing field for all the accommodations industry,” said Mahaney.
In Cape May, B&Bs sit side by side with vacation rentals homes. The B&Bs must collect 14 percent, a combination of state sales tax and a room tax while neighboring vacation home rentals pay no sales or room tax.
According to Cape May’s Tourism Commission, since the room tax began in 2004, five hotels and 18 B&Bs have closed in the city.
Mahaney said he had a couple of questions he would like to see addressed before the bill would be passed in the legislature. He said the bills defines that the “seaside lodging and rental district” would be an area three-quarters of a mile from the ocean.
Cape May is one mile wide. Mahaney said he would like to see the district include the entire city.
The bill would not include a lodging property which has 200 or more sleeping accommodations or a restaurant or banquet facility on site that seats 300 or more persons.
Mahaney said that would eliminate Cape May’s Grand Hotel from the equation. He said he would like to see the reduced room tax apply to all properties.
If more lodging facilities are paying into the fund, the city would receive more money, said the mayor. He said the city receives about $1 million per year from room tax collections and is showing a $28,000 gain so far this year.
Cape May uses all the room tax money for property tax relief. Tourism marketing funding comes from a portion of mercantile license fees.
The city would need a mechanism to identify all relevant properties especially whole house rentals, said Mahaney.
Councilwoman Deanna Fiocca, who recommended the resolution to council, said by leveling the playing field, the city would bring in more revenue “because everybody would be paying the same with the exception of one hotel.”
Councilman Bill Murray said while many lodging facilities are paying 14 percent, including sales tax, others were paying nothing other than purchasing a mercantile license. The legislation includes houses, apartments and condos that provide lodging for a period not more than 90 consecutive days. Yearly home or condo rentals would not be included.
Deputy Mayor Jack Wichterman, who was on council in 2004 when the accommodations tax was passed, said he was told a strong lobbying group from the real estate industry in Trenton would prevent whole house rentals from being included in the tax. He said the city has done little in the way of tourism marketing.
Wichterman said it would take some detective work from code enforcement to track down whole house rentals. He said he favored the bill.
Councilwoman Terri Swain said she believed the bill was fair but acknowledged enforcement would be difficult. She abstained from the vote stating she owned two rental homes.
During public comment, Taxpayers Association of Cape May Vice President Dennis Crowley said he wanted all the room tax to stay in the city and not see $2.5 million sent to the state.