Kalispell lobbies for local-option sales tax

Cities from across Montana lined up in support of legislation to establish a local-option sales tax Tuesday, arguing it would give municipalities the ability to address critical infrastructure needs in their communities.

Sponsored by Rep. Dave Fern, D-Whitefish, House Bill 577 would allow local governments to establish a sales tax of up to 4 percent on lodging, restaurants, bars and luxury items. The measure is part of a package of bills being pushed this session by the Montana Infrastructure Coalition to create funding sources for infrastructure projects across the state.

Kalispell has for years asked lawmakers for a local-option sales tax, and city manager Doug Russell told the House Taxation Committee that the city could raise an estimated $6.5 million per year from a 2-percent sale tax on luxury goods — more than the $5.6 million the city took in last year from property taxes.

“We’re just looking for that same tool to give those voters an opportunity for how they want to fund the services that are being provided,” Russell said. “Tourism spending has a huge impact on those infrastructure needs within the city of Kalispell.”

Under the proposal, counties and municipalities could hold a ballot initiative for voters to decide whether they want the local sales tax, targeted toward purchases made by visitors from out of state. The ballot question could also arise from a petition brought by at least 15 percent of the locality’s voters.

The bill was opposed by the state’s small-business and retail associations, who seized on the proposal’s inability to capture most sales from purchases made online.

“In my mind, the biggest reason why you should not pass this bill is it doesn’t tax online sellers,” said Brad Griffin, with the Montana Retail Association. Making note of the online retail giant Amazon, he added “Yet we’re going to give them a 4-percent head-start on every sale right out of the chute.”

Representing the Montana Taxpayers Association, lobbyist Bob Story criticized the flat property-tax rebate required for at least 25 percent of the new tax revenues under the bill. That would give equal tax relief to homeowners and business owners regardless of the value of their property.

In response to several lawmakers on the committee who cited concerns over how the money would ultimately be spent, Fern noted that his bill would require that the ballot initiative explicitly describe the infrastructure projects to be funded.

Chuck Stearns, who last week retired as the city manager of Whitefish, based his endorsement of the bill on his experience overseeing his city’s resort tax.

He said the source of revenue has allowed Whitefish to raise about $3 million annually for local infrastructure and watershed-protection projects. Noting Whitefish’s most recent increase in the local sales tax received 84 percent of the vote last year, he added, “Needless to say, it is one tax that is popular among the voters.”

Representatives from Great Falls, Bozeman, Glendive and Colstrip testified in support of the bill, which also has the backing of the Montana Chamber of Commerce.

Rep. Zach Brown, D-Bozeman, asked whether Flathead residents tend to avoid making purchases in Whitefish due to the town’s sales tax.

“That’s exactly what my council hoped would happen,” responded Bozeman city manager Chris Kukulski, referring to his five-year stint as the city manager of Kalispell. He said that was very rarely the case, adding, “More importantly, their property taxes are significantly lower. ... It’s more costly to do business in Kalispell and it’s more costly to do business in Bozeman than in towns that have the local option.”

Other lawmakers expressed concerns with whether local governments would be able to adequately track tax revenue from local purchases, and noted that bonds paid by sales-tax receipts could outlast the 10-year sunset required for local sales taxes established under the bill.

So far this session, Fern is the only lawmaker to introduce legislation enacting a local-option sales tax. Sen. Mike Phillips, D-Bozeman, has drafted similar legislation, but it has not yet been introduced.

The House tax panel did not immediately take action on Fern’s bill.

Reporter Sam Wilson can be reached at 758-4407 or swilson@dailyinterlake.com.