‘This is a tourist tax’ » Sandpoint Reader

By Zach Hagadone
Reading Staff

Sandpoint residents are more likely than not to see a measure on their 2022 ballots calling for the current 7% tax on short-term lodging to be raised to 14%, although the specific language did not not yet been finalized.

Photo by Ben Olson.

City Council members voted July 20 to table the ballot measure to get the wording right, but the essence of the demand will remain the same: double the resort town’s local option tax on rooms hotel, motel, and bed-and-breakfast businesses, as well as condos, tourist/vacation rentals, and other businesses that lease or lease temporary occupancy of 30 days or less.

The city’s current 7% “bed tax” goes to support public safety services and public park operations — including 50% or more of the City Beach Lifeguard Program — as well as the SPOT Bus. Excess funds raised by this 7% go towards property tax relief for residents, which in fiscal year 2023 is expected to reach approximately $200,000.

If approved, the 7% increase would be restricted to streets and sidewalks and would set the tax’s expiration date to December 31, 2035. The current tax, approved by votes in 2014, will expire on December 31, 2025.

Sandpoint town administrator Jennifer Stapleton said there had been some confusion over how the bed tax increase would be allocated, with written comments to town hall expressing concerns about that the 14% tax would divert money from public safety and parks.

“To be clear, the 7% – the amount currently collected – will continue to go to uses approved by voters, namely public safety services, parks and may also be used for infrastructure improvements,” said she declared. “But the increase 7% for consideration by council would be specifically dedicated to streets and sidewalks. It wouldn’t take anything away from public safety or parks.

In other words, half of the tax would go to the same beneficiaries it always has, while the other half would go to street paving, waterproofing and associated stormwater management infrastructure; the Pedestrian Priority Network, which includes maintaining, rebuilding, and expanding sidewalks and pathways, as well as curbs, ramps, and other improvements to keep the ADA accessible and safe; property tax relief; and the costs associated with collecting and enforcing the tax.

Over the past three years, the city has collected an average of $500,000 per year from the current bed tax, with year-over-year increases. It is estimated that adding an additional 7% to the tax will bring in an additional $6 million by 2035.

The need for this additional revenue – particularly applied to street infrastructure – is great, according to the town hall.

Based on data collected during the formulation of the Multimodal Transportation Plan, Sandpoint has a significant backlog of streets in “poor” or “very poor” condition – about 21%, twice the national average. The plan called for street spending to be increased to $1.3 million a year just to avoid increasing this backlog and prevent further failing conditions. Meanwhile, annual funding for paving maintenance and reconstruction in recent years has increased from $250,000 to $500,000 per year and funding for sidewalks has increased from $25,000 to $50,000.

The bed tax is designed to fall on visitors rather than residents, so that the former pay for the wear and tear on infrastructure and the demand for services that result from their time spent in the community.

Based on city data, hotel and motel bed tax revenue has declined while revenue from short-term rentals, such as vacation rentals, accounts for just over 50% of all bed tax revenue.

Emphasizing that short-term rentals are as lucrative as they are perilous, Stapleton reported that when she, city planner Amy Tweeten and Mayor Shelby Rognstad recently participated in a call with 20 other Idaho resort towns, they learned that up to 60% of McCall’s total housing stock is comprised of non-owner occupied short-term rentals.

Sandpoint has put in place an ordinance imposing a number of restrictions on such rentals – provided they are not owner-occupied – including requiring a permit and limiting them to 1% of the residential housing stock. Short-term, owner-occupied rentals, such as secondary suites, are automatically considered short-term rentals and may be rented with a permit and paying the required taxes. There is no limit to the number of short-term rentals allowed in commercial areas.

“We are by far the most restrictive when it comes to short-term rentals. I think it’s been great for Sandpoint,” Rognstad said. “He is universally recognized as aggressive.”

That said, there are many unauthorized short-term rentals known to exist throughout the city — “I know of about three in my neighborhood,” Councilman Jason Welker said — and Stapleton said the city is currently working on its application procedures.

“It’s kind of an ongoing battle for communities that have permit requirements,” she added.

Raising the bed tax has been a strategy to deter the expansion of short-term rentals in other communities where they have eaten away at the long-term housing market.

“It certainly could have an impact and hopefully it would have some of that impact here, but it would absolutely increase the cost of short-term rentals with the potential to make them less desirable,” Stapleton said.

“In terms of strategies to try to limit the proliferation of short-term rentals – investors are investing in a community, not being part of a community and only doing short-term rentals – we are seeing a variety of things with communities, including increasing these taxes, including increasing permit fees for these as well as adopting limitations on the number of these short-term rentals.

Referring to a 2019 study of lodging taxes across the country, Stapleton said the average bed tax is around 13.5%, with many resort towns charging a total tax rate of more than 20%. Montana recently increased its statewide short-term occupancy tax.

Welker pointed out that the current 7% resort tax is in addition to Idaho’s 6% sales tax and 2% state lodging tax, which means that a further increase of 7% actually raises the effective tax rate on short-term accommodation from 15% to 22%.

“It’s significant,” he said.

Council chair Kate McAlister said that while paying these taxes can be a burden on short-term accommodation operators, “they also benefit from tax deductions and rental”. She also pointed out that “it is a tourist tax”.

Councilor Deb Ruehle suggested there doesn’t seem to be any problem filling short-term rentals in the city, and “given that this is a national average, it doesn’t look like we’re going to the -of the “.

Rognstad added that “even at 14% we’re still leaving quite a bit of money on the table.”

Council asked city staff to work on the wording of the ballot and bring it back for further review. The deadline for submitting the measure to appear before voters in November is September 1.

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