ECON 919 - City thoughts on a borough bed tax

Jun 21, 2019

 


We told you about the borough assembly putting a bed tax question on the ballot earlier this week, but what do the cities around the borough think of the bed tax voters will decide on this fall?

 

 


For the first time in almost 15 years, borough voters will choose whether or not to institute a lodging, or a bed tax. There are lots of different names for fleecing tourists. Currently, the Kenai Peninsula Borough is one of just two boroughs around the state that doesn’t charge some kind of tax for visitors paying to spend the night somewhere. The Mat-Su Borough has a five percent transient accommodations tax. The Lake and Peninsula Borough in Bristol Bay charges six percent, and its policy specifically states that the guest will pay the tax. It’s six percent in Wrangell, eight percent in Fairbanks, the Municipality of Anchorage has a 12 percent room tax. So this isn’t a new phenomenon in Alaska, and most boroughs and cities rely on some kind of mechanism to capture more than just sales tax revenue from visitors.

 

But on the Peninsula, only the city of Seward currently has a room tax. It’s four percent, and the assistant city manager there, Brennan Hickock says overall, it’s been a good deal for the city. But he had some advice for making sure it works.

“It’s worked very well for us. If you are going to implement a bed tax, you should be willing to discuss the need to pony up money for compliance and enforcement. We’ve identified in Seward that we have a handful of businesses and short term rentals that don’t have business licenses, don’t collect sales tax, don’t collect bed tax. We’ve hired a firm to come in and audit; they search all the online platforms and figure out who’s in compliance with our codes and who’s not. We pay about $9,000 a year for that program, but have identified between 60 and 100 businesses that are not in compliance with Seward’s code.”

Both Kenai and Soldotna city councils adopted resolutions earlier this year supporting the effort to get a bed tax on the ballot. Soldotna city manager Stephanie Queen says that while the city doesn’t have a lot of private operators, traditional or online-style BnB’s, they still heard little from the industry about dealing with the borough’s proposed tax.

“We didn’t have a lot of outreach from our local businesses. In Soldotna, we’ve got a few branded hotel chains that are smaller in size and then not as many of the individual operators, not as many of the BnB’s as some of the other communities have. But, regardless, didn’t have a tremendous amount of feedback from business owners and ultimately the resolution was supported by the council unanimously."

Now, in Homer, there was feedback. Of course there are tons of short term rentals in and around Homer, so much so that it’s become an issue for people looking for long term housing. And while businesses like Land’s End have spoken against the tax, city council member Rachel Lord doesn’t see an extra 10 or so dollars a night doing much to slow down tourism around the Cosmic Hamlet.

 

But like in Seward, she emphasized the need to focus on collection and enforcement.

“If the business community could see the borough is taking an active role in compliance and enforcement across the industry, so the ones that are obeying the law, that are following the rules, aren’t at a competitive disadvantage. That might go a long way, or at least part of the way in getting folks to accept or appreciate (the tax)," Lord said. "Because I never look at the bed tax to decide if I’m going to go visit my family or if I’m going to go to Hawaii or I’m going to go wherever and I pay it. And everybody around the state pays it. The idea that the (Kenai Peninsula) Borough and the Aleutians East Borough are the only two boroughs in the state that don’t collect a bed tax of some sort is crazy. I’m fully in support of it personally and I know that at least of portion of Homer, southern Peninsula residents are as well.”

The tax coming to the borough’s fall ballot calls for a 10 percent tax on all hotels, campsites, RV parks and lodges and it’s expected to bring in close to $4 million annually. That would go a long way toward closing the borough’s ongoing budget gap. This year, it’s about $5 million.