By Phil Drake | Montana Watchdog
HELENA — Montana may not have a statewide sales tax, but eight communities and areas charge what is referred to as a “resort tax.”
People purchasing some goods and services in those communities and areas could be charged as much as 3 percent more because of resort taxes, according to the Montana Department of Revenue (DOR).
Is this a case of a sales tax by another name?
Whitefish City Manager Chuck Stearns said he hears people refer to the 2 percent “resort tax” in his community as a “sales tax” only when they are saying something derogatory about it.
The taxes pay for services and the communities that have them must meet specific “population and economic” conditions, according to the DOR website.
“The fundamental idea behind resort taxes is to allow places with high numbers of visitors, but relatively few residents, to manage the wear and tear on local infrastructure without overburdening local citizens,” the DOR website states.
The Department of Commerce (DOC) approves the designation for a resort and community area. Local voters must approve the tax, its duration and allocation.
Under state law, the population of the community must be less than 5,500 for a town and less than 2,500 for an unincorporated area. Also, the DOC must find that the major portion of the community’s economic well-being is from businesses catering to non-business travelers.
The maximum resort tax is 3 percent. At least 5 percent of the resort tax revenue must offset municipal property taxes.
The tax is on the retail value of all goods and services, except for those sold for resale, according to the DOR website. Among the goods and services are:
- Hotels, motels and other lodging or camping facilities;
- Restaurants, fast-food stores and other food service businesses;
- Bars and other businesses that serve spirits by the drink;
- Destination ski resorts and other such recreational businesses;
- “(E)stablishments that sell luxuries.”
DOR defines luxuries as an item normally sold to the public or tourists with the exception of “unprepared food, medicine or medical supplies, appliances, hardware supplies and tools, or any necessities of life.” Luxuries include sporting good rentals, books, magazines, souvenirs and antiques.
According to the DOR website, the “communities” with a resort tax are:
- Whitefish with 2 percent, which started in 1995;
- Red Lodge with 3 percent, 1998;
- Virginia City with 3 percent, 1991;
- West Yellowstone with 3 percent, 1986.
The “areas” with a resort tax are:
- St. Regis with 3 percent, which started in 1993;
- Big Sky with 3 percent, 1992;
- Cooke City with 3 percent, 2006;
- Craig with 3 percent, 2011.
Stearns, the Whitefish city manager, said the resort tax has been an “immense help” to the community of 6,400 residents, raising about $2 million last year. Of that, 65 percent was put into roads, 25 percent into property tax relief, 5 percent into parks and trails and 5 percent for vendors.
Stearns added that the revenue also has allowed his city to have more police officers than other cities have per capita.
He said the tax applies to consumable food served, which has led to some interesting interpretations. For example, Stearns said that if a person buys one doughnut and eats it at the location, it’s taxed. But if a person buys a bag of doughnuts and eats them at home, they’re not taxed.
The resort tax has grown on residents, who passed it initially with a 56 percent to 44 percent margin. In 2004, residents renewed the tax with a 76 percent to 24 percent vote.
Stearns said he believes the vote was somewhat swayed by “fewer potholes and new roads.”
“We did have some pretty bad roads and a lot of potholes,” he said, adding residents “do enjoy the property tax relief.”
He said some locals will buy in nearby Kalispell, but that shopping tactic hasn’t been pervasive.
Stearns said the resort tax could work in other Montana communities, as tourism affects many of the state’s bigger cities. But he knows the “no sales tax” attitude in the state.
“If people don’t like the sales tax, they better like the property tax a whole lot,” he said.
Gregory Minchak, spokesman for the National League of Cities, a resource for 19,000 cities, towns and villages, said sluggish economies have prompted more cities to consider ways to increase funding.
“Our research shows that more cities are looking at sales taxes and other revenue sources during these tough times,” he said.
Minchak said some cities are looking at nonprofits to see if they will help pay for city services. And he said the majority of cities still get most their money from property taxes.
Other states with local option sales taxes include Iowa, Nebraska, Vermont, Minnesota, California and Nevada. The states without a statewide sales tax are Alaska, Delaware, New Hampshire and Oregon.
Staff officials also note that Montana also has a 4 percent “bed tax” on overnight lodging that supports tourism promotions and state parks, historic sites, and other programs.
The funds are “directed to the Montana Historical Society, the University System, the Department of Fish, Wildlife & Parks, Montana’s tourism regions and visitor bureaus, and the Department of Commerce for travel and film location promotion,” according to the state’s website.
It also notes a portion of the bed tax is used for infrastructure related to tourism.