Two cents' worth

Whitefish resort tax brings in more than $10 million in 10 years

Mark Svennungsen was at Super 1 Foods in Whitefish recently when a shopper from Missoula began quizzing him about the city's 2 percent resort tax.

"She started asking questions and then she said, 'Boy, I wish we had a resort tax in Missoula. What a progressive town this is,' " recalled Svennungsen, a retired optometrist. "It made me feel good."

Whitefish's resort tax was controversial when collections began a decade ago, but somewhere along the way, controversy gave way to admiration and even envy from other Montana communities that wish they had a way to raise the kind of money Whitefish's modest two-pennies-on-the-dollar tax has collected.

Since the resort tax began in February 1996, Whitefish has raised more than $10.4 million from taxing lodging facilities, restaurants/bars and luxury retail items. That figure reflects what was collected through December 2005 and doesn't include 2006 figures.

To date, $5.7 million has gone into street repair. Another $2.5 million has been rebated to Whitefish property owners.

Visitors are generally impressed when they learn how resort-tax money has benefited the community, Whitefish Chamber of Commerce Director Sheila Bowen said.

"We have a tremendous amount of people who say our streets are nice," Bowen said.

And most out-of-staters are used to paying much higher sales taxes, so they think they're getting a bargain at 2 percent, she added.

THE TAX structure mandates that 65 percent of the revenue be used for street reconstruction. Twenty-five percent is set aside for property-tax relief and 5 percent goes to park and trail projects. The remaining 5 percent is retained by merchants to offset costs they incur in collecting the tax.

Resort-tax revenue has been used for a wide range of park projects, from bleachers at the Whitefish ice rink to reconstruction of the Grouse Mountain tennis courts.

Property-tax relief from the tax has allowed Whitefish to hold the line on taxes. In the current budget cycle, the city will collect roughly $351,000 in resort-tax revenue to redistribute to property owners. The rebates, along with a brisk growth rate that's fattening the tax base, and an efficiently run city government have allowed Whitefish to keep its mill rate the lowest of Montana's 13 largest cities, according to City Manager Gary Marks.

"Other communities [without a resort tax] have to fund capital improvements out of their general fund," he said.

RETAIL BUSINESS owners bore the brunt of controversy during the first couple of years of tax collections. Some disgruntled shoppers - opposed in principle to any tax increase - vowed to take their business elsewhere. But for the most part the 2 percent tax has been barely a blip on most shoppers' radar.

"The front-line people did take the brunt of criticism," acknowledged Nancy Svennungsen, a long-time downtown Whitefish business owner who's in the process of selling her remaining silent ownership in The Village Shop. "I never opposed it. I always thought it was a good thing. It has been great for the community, but it was hard in the beginning."

Stuart Milter, who owns Stuart Jewelers in downtown Whitefish, remains opposed to the tax.

"I still feel the same, it's an unfair tax," Milter said.

He continues to pay the tax out of his own shop revenue instead of passing it on to customers.

"It's my personal protest," he said. "As far as loss of business from this tax, I've lost a significant amount of the Kalispell business. They resent it; I've talked to Kalispell people."

Not long after the tax began in 1996, Milter pushed for a referendum to repeal the tax, but the effort died when not enough signatures were gathered. Milter said he believes that if businesses are taxed on "luxury" items, real-estate and banking transactions in Whitefish should also be taxed.

Milter is a member of the Resort Tax Monitoring Committee, a position he says allows him to stay in tune with how the tax revenue is used.

He conceded that committee members and retailers are generally pleased with the improvements paid for with resort-tax revenue.

Retail businesses have collected the most resort tax in Whitefish every year since it began. At the end of 2005, retail collections totaled $4.5 million, compared to $3.6 million collected by bars and restaurants and $1.9 million from hotels and motels.

Collecting the taxes on a monthly basis has not yielded many problems for the city, City Attorney John Phelps said.

"There's a tiny portion of 1 percent that don't pay on time," he said.

On occasion the city has gone to court over delinquent tax payments, but not often, Phelps added.

Whitefish's resort-tax ordinance mandates the random audit of local businesses to ensure they're correctly assessing the 2 percent tax. Those audits have "yielded a great result," Phelps said.

IN THE beginning, several retailers pushed for a graduated tax system - 3 percent for lodging, 2 percent for restaurants/bars and 1 percent for retail goods. That proposal was never taken seriously, largely because the lodging industry had flexed its political muscle when city leaders struck a deal to gain support for the resort tax. Hotel and motel owners and their well-organized state association agreed to support Whitefish's resort tax, but only if everyone was taxed equally.

Nevertheless, the City Council asked for an Attorney General opinion about whether or not the city could establish a tiered tax system and learned it could impose different taxes on different services as long as they remain within the 3 percent cap. Voters would need to approve a tiered structure.

There also have been suggestions through the years to ask voters to raise the tax to 3 percent. The Resort Tax Monitoring Committee, created by city ordinance when the tax was enacted, recently recommended raising the tax to the maximum 3 percent allowed under state law.

"It would be a way to get all the roads fixed," long-time committee member Shirley Jacobson said. "The extension [of the tax's sunset] was a grand thing, but I wish they'd raise it one more percent."

Two years ago the City Council agreed to a ballot measure extending the 2-percent tax another nine years, from a sunset date of 2016 to 2025. It passed by a 3-to-1 margin.

"The vote in 2004 delivered a huge message that the community supports the tax in a very significant way," Marks said. "It's an indication that people like what they're seeing."

The extension will generate an additional $10.5 million for street reconstruction over the life of the resort tax, allowing improvements to about 70 more blocks of streets. The extra nine years will create up to $6.5 million in additional property tax relief for Whitefish residents, and pumps roughly $800,000 into bike paths and park improvements.

When Marks first started conducting a quality-of-service survey for the city in 1999, streets ranked fairly low in terms of resident satisfaction. As street projects have been completed, the satisfaction rate of city residents has steadily increased.

Whitefish still has the ability to raise the tax to 3 percent or make other changes, Marks said, but it would still require a ballot measure, either through a council recommendation or a citizens initiative.

The City Council chose to put the tax extension to voters while the city still had a chance to control the destiny of its tax. Proposed legislation during the 2003 session, had it passed, would have extended the local-option tax to all Montana cities, but with sunset provisions.

Features editor Lynnette Hintze may be reached at 758-4421 or by e-mail at lhintze@dailyinterlake.com