Service tax idea brought to light

Posted: Friday, June 03, 2005

With the bed tax ballot measure awaiting an assembly reconsideration vote Tuesday, a Homer hotelier has proposed creation of a task force to look into a different kind of tourist tax, one he said he believes would tap a broader tax base, be perceived as fairer and help fill borough coffers faster than a bed tax.

Mike Warburton, owner of the Ocean Shores Hotel in Homer, has proposed a tourist industry tax in lieu of the 4-percent bed tax currently headed for the October municipal ballot, barring a decision reversal Tuesday by the Kenai Peninsula Borough Assembly.

The assembly voted 5-4 at its May 17 meeting to put the 4-percent bed tax on the fall ballot, where opponents, including many owners of hotels, motels and bed-and-breakfast operations, fear it will pass, largely because it would be a kind of sales tax some residents would never pay and others might pay only rarely.

Opponents also fear adding the bed tax atop existing municipal sales tax levies would drive tourists away from the peninsula. They argue that the bed tax targets a limited number of businesses — businesses struggling to survive in an industry already paying significant borough property taxes.

A tourist industry tax would tax more businesses deriving the majority of their revenue directly from tourists, Warburton said.

That list would include not only hotels, motels and bed-and-breakfast operations, but also such things as sightseeing tours, bear-viewing trips, marine wildlife watching tours, fishing charters, river rafting and perhaps others — certainly many more enterprises than would be covered under the proposed 4-percent bed tax, Warburton contended.

Hard goods, however, like fishing lures, T-shirts and souvenirs, would not be taxed under the proposed "service" tax, he said.

Such a tax, he said, would be broad-based, require less in taxes from local residents, generate more tax income and spread costs more evenly, he said. It also would have the virtue of being nearly invisible because it amounts to an increase in the general sales tax, not a separate line-item as bed taxes often are on hotel bills.

According to borough economist Jeanne Camp, boroughwide retail taxable sales have increased 28.2 percent in five years, but the population has climbed only 2.6 percent since 2000. Tourism may well have driven most of that growth.

Reached Wednesday, Warburton said he and other owners of lodging businesses are circulating a petition in Seldovia and Homer in support of investigating a service tax. It is meeting with favorable response, he said.

"People are lining up behind us totally," he said, adding that about 200 people had signed so far. "We're shooting for 500."

Time is short, however. Warburton hopes to present the petition signatures to the assembly by Tuesday's meeting in the hopes it will at least delay further action on a bed tax and create a task force to investigate the broader service tax idea.

Industry representatives are ready to serve on that task force, he said.

Larry Goode, past president of the Homer Bed and Breakfast Association, said there was no doubt the service tax idea was a preferable alternative to the bed tax.

"It doesn't lay all the burden on the lodging industry," he said, "but it helps the borough gather money for the piggy bank. It spreads it out."

Because of that spreading, tourists would actually pay less, but the tax base would be larger, thus generating more revenue, he said.

Assembly member Millie Martin of Diamond Ridge met with Warburton last week to discuss the proposal. Martin, who voted against sending the bed tax to the ballot, said she came away convinced the idea is worth further review, and preferably before the ballot issue is set.

"Are we putting the right (tax) vehicle before the voters? That will be my question Tuesday," she said.

Homer assembly member Chris Moss, who voted in favor of sending the bed tax idea to the voters, said he's spoken with Warburton and that the hotelier had made some fairly persuasive arguments.

Following his vote on the ballot issue May 17, Moss said he could foresee nothing that would change his mind on reconsideration. Asked about that stand Wednesday, he said he had not changed his mind, but he was giving Warburton's idea some thought. He noted, however, that abandoning the bed tax idea and taking up Warburton's broader service tax proposal would put off creation of that revenue stream by at least a year.

On the other hand, Moss said, even a positive vote on the bed tax wouldn't levy an actual tax. It would only give the assembly the power to levy a tax of up to 4 percent. The assembly would still need to vote to set a tax rate, and there is no guarantee they would, he said.

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