Town Council Plans 23% Increase in Lodging Tax

Cape Charles Wave

March 17, 2014

Cape Charles Town Council plans to raise the town’s lodging tax by 23 percent — only four years after enacting a 50 percent increase. That will bring the total lodging tax increase over four years to 85 percent (from 2 percent to 3.7 percent). If as expected the Council votes to go ahead with the tax increase at its Thursday, March 20, meeting, the next step will be to hold a public hearing in April.

In addition to the town tax, lodgers pay 5.3 percent state tax and 2 percent county tax. A state tax increase (from 5 percent to 5.3 percent) took effect in 2013. Combining town, county, and state rates, a lodger currently pays 10.3 percent tax. During discussion at a February budget retreat, Town Council members agreed it would be a good idea to “round off” the total tax amount and so have decided on a .7 percent increase – for a total lodging tax of 11 percent.

The idea to raise the lodging tax comes at a time of record receipts due to the town’s increased popularity for vacation rentals. In 2010 the town began contributing one-third of lodging tax receipts to the Eastern Shore of Virginia Tourism Commission.  The contribution to the Tourism Commission grew from under $10,000 in FY 2011 to over $16,000 in FY 2013. Now the Town Council wants to “cap” contributions to the Tourism Commission rather than continue giving a full one-third. It then wants to use the increased funds available to support tourism-related endeavors such as the website “Cape Charles By the Bay.”

Northampton County was authorized by the Town to collect the transient occupancy tax under the Annexation Agreement of 1991. The agreement was that a 2 percent tax on town lodging was to be remitted to the county on a monthly basis. At the end of each year, the county was to return the full amount plus interest to the town for 10 years. After 10 years, the county would keep the 2 percent tax for its own purposes.

At some point both the county and the town began charging lodging tax, with increases over the years until the total town/county tax rate equaled the present 5 percent. According to town code, the county is still supposed to collect the full tax monthly, and then remit the amount above 2 percent back to the town. But in 2010 the then-town treasurer stated that during her tenure she had never received a remittance from the county. Current town records also fail to indicate that any lodging tax is being returned by the county to the town.


The current town requirement, with no legal basis, is for landlords to remit 3 percent tax directly to the town.  And some landlords seem to be just as confused as the municipalities over what to do and how to do it.

Tax records supplied to the Wave by the town indicate that during the last calendar year, 33 businesses filed at least one monthly lodging tax return. That included the town’s five B&Bs and two hotels, as well as seven property management agencies. Only 19 individual property owners filed the tax, and of those, only 15 filed for more than one month of the year.

At a March 13 work session, Councilman Frank Wendell asked Town Manager Heather Arcos how many vacation rentals pay the required tax. “I don’t know,” Arcos replied. Vice Mayor Chris Bannon and Council member Joan Natali agreed that “It’s an honor system.” Mayor Dora Sullivan admitted that some landlords fail to pay the tax. “That is done — it is not the norm,” she said. Bannon had a different take: “Everyone’s trying to get by without paying,” he said.

Arcos said that “you can look on the Internet to see how many properties are in Cape Charles.” A survey by the Wave indicates that more than 100 properties within town limits are advertised as vacation rentals.

Town code states “It shall be the duty of the treasurer to ascertain the name of every person . . . liable for the collection of the tax. . . .” Anyone who “fails, refuses or neglects to collect such tax” is to be issued a summons.

Town records indicate who is paying the tax, but there is no way to determine who is not paying. That’s because many privately owned rentals are managed by agencies. According to town records, the agencies file a single monthly statement that makes no mention of which properties the tax was collected for.

There is also confusion over how high a tax rate the town and county are legally allowed to set. When asked by the Wave if the town had consulted its attorney about the legality of imposing a tax greater than 5 percent, Mayor Sullivan said yes. But Assistant Town Manager Bob Panek said there was no need for a legal opinion, because Virginia gives towns “broad authority to tax beyond that allowed to a county.”

If Panek is correct, then the town must have been confused in 2010 when it passed the tax ordinance still in effect today. That ordinance includes this clause: “Whereas the Code of Virginia section 58.1-3819 – Transient Occupancy Tax states that a levy of transient occupancy tax not to exceed 5 percent may be charged but any excess over 2 percent shall be designated for tourism and travel;” (CLICK for entire ordinance). The ordinance was signed April 8, 2010, by Mayor Sullivan.



9 Responses to “Town Council Plans 23% Increase in Lodging Tax”

  1. Sandy Mayer on March 18th, 2014 1:43 am

    The lodging tax will go from 10.3% (which is difficult to explain to guests) to 11%. It is my understanding that the increase will help to finance the new Cape Charles website and other necessary tourism items, like perhaps extending hours at the Museum and Welcome Center. The Museum was one of the nonprofits that was severely cut from the town’s budget and needs donations to survive.

  2. Barbara Murray on March 18th, 2014 10:24 am

    Great! Just another tax increase that will keep tourists away from Cape Charles. You may as well just roll up the streets and get it over with! How about lowering the tax to encourage more visitors? Remember, it works every time: lower taxes — increased revenue. It doesn’t take a rocket scientist to figure that one out.

  3. Steve Downs on March 18th, 2014 1:33 pm

    That’s right! Stick your hands in our visitors’ pockets and steal their wallets! While running a pizzeria in town, I found more than a few customers were appalled at the 10% tax on their meals. I can’t imagine how they will feel about the taxes on lodging. And this town thinks it is visitor friendly? Hardly. What you will be doing is going to make visitors think twice about visiting Cape Charles.
    Can’t wait for elections!

  4. Hank & Sandy Mayer on March 19th, 2014 11:34 am

    We own both a B&B and vacation rental property in Cape Charles, and do not believe that a 0.7% increase in the transient occupancy tax will have a negative effect on our businesses or other lodging in the Town. This total of 11.0% in lodging taxes will be less than the 11.3% currently charged in Chincoteague and 14.0% in Virginia Beach. The proceeds will be used to attract the hundreds of thousands of possible visitors who drive past us on Route 13 or who live within an hour’s drive to come visit Cape Charles. It will also contribute support to Tall Ships Cape Charles, the Welcome Center, Harbor for the Arts, and other programs that benefit our lodging, restaurants, and retail businesses.

  5. Sandy Mayer on March 19th, 2014 11:39 am

    It is my understanding that the town was overburdened with lawsuits about the old school and the bathrooms in Central Park. Consequently, all the non-profits that usually were given a boost to continue their good work lost their money — Tall Ships, the Museum, Arts Enter to mention a few. That is also why our water bill went up. Our great new website needs to continue. We need expanded hours at the Welcome Center. The B&B’s are on board with the .7% increase. If you don’t like the small tax increase to fund necessary programs, then you need to think of another way to raise money — raise the water bill again maybe, tourists or homeowners. That is the choice.

  6. Dana Lascu on March 19th, 2014 12:50 pm

    To the Mayers: Last I checked, your B&B was for sale, so of course you can’t foresee that an increase in the transient occupancy tax would have a negative effect on your business. The opinions of owners/managers committed to a future in the lodging business carry more weight. Perhaps we should hear from them.

  7. Donna Olney Kohler on March 19th, 2014 1:19 pm

    As one of the owners of Fig Street Inn, I speak for myself in saying that I am willing to consider a .7% increase in the lodging tax, but I have many concerns about how that money will be allocated, and the process on who decides what projects get funding. Without knowing more about that plan, I cannot agree to an increase. Fig Street Inn is a member of the Cape Charles Bed & Breakfast Association, and it is incorrect to say the B&Bs are on board with an increase. We did discuss, but we did not come to a decision or vote. At this point, each property should speak for themselves.

  8. Veann Duvall on March 19th, 2014 4:46 pm

    To Sandy Mayer: Are you kidding me? Let’s face it — you are selling out and getting out of Dodge (Cape Charles), so what do you care if they raise the tax? The water bill didn’t go up because of the lawsuits. The water bill and taxes continue to rise because of the over-built, stinky sewer plant that your friend Bob arranged. The citizens are fed up with paying taxes to fund the Town Council’s stupid ideas. The people currently running this town will continue to raise taxes and water bills.

  9. Sandy Mayer on March 20th, 2014 12:03 am

    We have a rental cottage on Mason that pays transient tax and water. The difference between 10.3% and 11% will not make a difference in occupancy.