CAPE MAY – Dennis Crowley, chair, Municipal Taxation and Revenue Advisory Committee (MTRAC), Cape May, returned to Cape May City Council May 4.
Armed with 43 slides, Crowley drove home his committee’s recommendations that the city increases the municipal occupancy tax, from 2% to 3%, and extend the tax to short-term rentals booked through apps like Airbnb and VRBO.
Cape May’s Economy
Crowley asserted a set of what he termed “realities.” Calling Cape May America’s No. 1 seaside resort, Crowley urged the council to see Cape May as a business, the municipal budget as a support for that business, and the various revenue streams that flow into that budget as important to business success.
Using state sales tax data, Crowley gave dimension to the size of that business economy. In 2019, the year before the pandemic, data showed gross receipts in Cape May totaled $267 million, with a resulting $17.7 million in sales tax receipts.
Turning to mercantile license data, Crowley noted Cape May has 377 commercial mercantile licenses and 464 residential rental mercantile licenses. This commercial and rental environment is aimed at the almost 50,000 visitors that can be found in the city on any given day during summer.
Cape May’s census resident population is 3,422, but the $22 million municipal budget must supply services to thelargerseasonal population of tourists and vacation homeowners.
The committee’s job, as Crowley defined it, is to look at new sources of revenue that can help the municipal budget provide improved services.
Revenue Loss
Crowley noted that 50% of the city’s budget is supported by property taxes and another 20% by local revenue sources, including the two largest local revenue contributors – the occupancy tax and parking meters.
Crowley returned to one of the two core recommendations from his committee – increasing the municipal occupancy tax by 1%. Arguing that a 1% hike in the tax would not drive any visitor from Cape May, Crowley focused on the $700,000 per year in additional revenue the city loses by ignoring the opportunity to charge the full 3%.
Crowley argued that the city, in the last five years, failed to capture $3.7 million in revenue it otherwise could’ve received. Since the municipal occupancy tax ordinance’s inception, in 2004, the “lost” revenue totaled over $10 million.
Noting this tax represents a user fee placed on those who enjoy what Cape May offers, Crowley said it was the city’s duty to maximize this revenue stream.
Tourism Utility
The purpose of the city’s tourism utility is to recoup the expenses related to debt service obligations and operational costs of Convention Hall, which is done through several recreational, tourism and civic activities fees.
Crowley made the point that the utility has not achieved the self-sufficiency it was expected to achieve. He identified the culprit – the 2% occupancy tax.
Noting that the utility received occupancy tax revenue over a set threshold, Crowley argued that a 3% occupancy tax would bolster the tourism utility and end its need for subsidies from the general fund.
Residential Rental Marketplace
Crowley’s presentation dealt with what the state calls the transient space marketplace (TSM). This is the accommodations marketplace created by internet applications, like Airbnb and VRBO. It allows property owners to bypass local real estate agents and lease directly to consumers.
In 2018, the state extended the occupancy tax to this marketplace and the applications have mechanisms for collecting it.
The city failed to extend its imposition of the occupancy tax to this emerging area of accommodations, thereby forgoing a new revenue stream and creating what Crowley called an equity issue, taxing part of the commercial accommodations industry while ignoring another part.
The presentation made clear this large but relatively unknown segment of the city’s accommodations in which Airbnb lists Cape May as its No. 2 destination and VRBO displayed 50 properties renting for $1,000 a night or more.
The MTRAC recommends the city immediately extend the occupancy tax to this marketplace as allowed by state law.
Next Task
Having presented and supported its recommendations for raising the occupancy tax to 3% and extending that tax to the TSM, MTRAC promises its next task will be to supply the city with information for a comprehensive municipal ordinance that effectively defines and addresses the roles and responsibilities regarding residential retail activities.
Crowley urged the city take action on the MTRAC recommendations in time to enact them before the Nov. 1 start of the state taxation cycle.
To contact Vince Conti, email vconti@cmcherald.com.
