Bed tax proposal gets mixed reviews

Posted: Friday, March 18, 2005

The Kenai Peninsula Borough Assembly took more public hearing comments Tuesday on a controversial measure that would impose an 8-percent transient accommodations tax, commonly called a bed tax, on hotels, motels and bed-and-breakfast operations.

That tax, however, would be subject to a public vote next fall if approved by the assembly.

Testimony was mixed.

"A bed tax to me, is going to be a bad tax," said Irene Fandel, owner of lodging business. She warned that a bed tax could lead tourists to spend their money elsewhere.

"The small business operator in the borough should not be held financially responsible for the borough assembly's and borough administration's budget shortfall of more than $5 million."

The borough is facing such a budget crunch in the coming fiscal year, and the current tax proposal, Ordinance 2005-05, is meant to help cover the shortfall.

Herman Fandel said that years ago he and his wife had created a lodging and recreation package for their guests on which they collected a combined borough and city sales tax fee of 5 percent. Borough code subsequently was changed, he said, to require that sales taxes be applied separately to the lodging and recreation portions — that is, 5 percent on each. He argued that an 8-percent bed tax would push the total to an 18 percent tax.

However, Chay later challenged that assumption, pointing out that if lodging cost $100, a fishing boat charter another $100, and an 8-percent bed tax were then imposed on the $100 accommodation charge, the total effect would be nowhere near 18 percent of the total.

Calculated that way, a tourist would pay $5 in sales tax on a room, $5 on the boat ride and $8 in bed taxes for a total of $18 on $200 worth of sales, or 9 percent.

Homer resident Leah Handley, president of the Homer Bed and Breakfast Association, said the bed tax would impose "an undue burden" on members of the industry. The association, she said, had adopted a resolution unanimously opposing the bed tax proposal. She said the industry was being unfairly targeted.

Not everyone opposed imposition of a bed tax, however. Several testified they could support a bed tax if the revenue generated went back into promoting the peninsula as a tourist destination.

Aud Walaszek, representing the Kenai Peninsula Tourism Marketing Council, said a sustainable funding mechanism for marketing the Kenai Peninsula was necessary if the peninsula is to remain competitive with other areas of the state. A bed tax, she noted, was a proven method for generating such funds, and a common practice elsewhere in Alaska.

She said the tourism council recommended several ideas for discussion by the assembly, including naming the bed tax the Kenai Peninsula Tourism Marketing Transient Tax to make its purpose clear. She also suggested a resolution naming the marketing council as the official marketing arm of the Kenai Peninsula Borough, and that the transient tax include RV parks and cabins, as well as bed-and-breakfast, hotel and motel businesses.

Further, she suggested that 90 percent of generated revenues up to $350,000 and half revenue in excess of $350,000 be spent directly on tourism marketing.

The bed tax proposal is set for public hearings on March 28 in Homer and April 5 in Soldotna.

In comments at the end of the meeting, Chay said people should not get the impression the assembly would pass the whole host of options currently on the table.

"In order to discuss anything here, they have to be on the table in the form of a resolution or ordinance," he said.

He said the assembly and administration were not only focusing on revenue-generating ideas, but also at cutting expenditures. Bagley has recommended elimination of several borough positions, which would shrink the size of the bureaucracy and cut costs.

He reminded the public that the borough mill rate on property tax, now 6.5 mills, was above 8 mills in the mid-1990s, and that Anchorage, which lacks a sales tax, has a mill rate in the 17- to 19-mill range.

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