For the week of Aug 28 - Sept 3, 2002

Taking the tax to task

Should Ketchum hike its 
sales tax by 1 percent?

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By GREG STAHL
Express Staff Writer

Ketchum and Sun Valley are among a select few cities in Idaho allowed to enact a levy to offset the financial burdens tourism imposes on local infrastructures.

The idea behind the tax is that tourists should help pay for services they require—such as additional sewer and water capacities and more police and fire protection.

Resort business is the bread and butter of Ketchum’s economy. Ketchum Mayor Ed Simon has proposed boosting a local sales tax by 1 percent, but retailers are wondering how a hike would affect business. Express photo by David N. Seelig

In Ketchum, politicians have identified a need for land, which, they say, could be used in any number of ways to help the resort economy. Affordable housing for area employees, parks for residents and visitors’ relaxation and parking are examples.

Last spring, Ketchum Mayor Ed Simon proposed that city officials and citizens consider boosting the local option tax (LOT) by 1 percent to help fund land acquisition, but, in the current economic environment, the idea is getting mixed reviews.

"Certainly I can say that, overall, the local option tax in Ketchum and Sun Valley has been a significant source of income to help keep mill rate levies low for local property owners and to provide a lot of additional services," said Carol Waller, executive director of the Sun Valley-Ketchum Chamber and Visitors Bureau. "But you want to be sensitive about making it a competitive disadvantage for Ketchum businesses, because it’s already a challenge."

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The LOT is a voter-enabled levy on short-term rentals, liquor by the drink and general sales. It raised $1.9 million in Ketchum’s 2000-2001 fiscal year.

State law allows only resort cities to apply this additional tax and caps it at 3 percent. Changes to the tax must be approved by a majority of voters.

Ketchum currently institutes a 1 percent tax on retail sales and a 2 percent tax on rooms and liquor. Voters last approved the LOT in November 1997 by an 87 percent margin. The levy is scheduled to expire in 2013.

The concept of raising the tax isn’t new, either. The neighboring resort city of Sun Valley raised its local option tax from 2 to 3 percent in 1999.

In the early winter of 1998, a group of Sun Valley business owners, including Sun Valley Co., banded together to fight the 1 percent sales tax hike Sun Valley’s citizens had approved by a narrow margin in that year’s November election. The tax, they said, would drive away tourists.

Despite the business owners’ objections, the tax went into effect as scheduled early in 1999. It is difficult to tell, however, if business was ultimately lost.

"Can I attribute a loss of business? I don’t know," said Bill Mason, who owns Bill Mason Outfitters in Sun Valley. "I can tell you that it certainly hasn’t helped."

Mason contended that the tax in Sun Valley is helping pay for services, like road building and bike path expansion, the city should pay for using property taxes. He also suggested that Ketchum tread lightly.

"I would be very careful about it in Ketchum," he said. "What local business that’s left in Ketchum just keeps getting shoved southward."

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According to a 2001 economic analysis of Blaine County, the majority of the LOT is generated by tourism.

"Visitors generate approximately 80 percent of the total local option tax receipts (in Sun Valley and Ketchum combined)" states the study, compiled for the CVB.

In Ketchum, visitors generate closer to 70 percent of the total revenues.

For that reason, the LOT is widely regarded as a good deal for local residents. The difficult part is striking a balance whereby prospective customers aren’t deterred and the local cities gain the greatest benefit possible.

In Ketchum, lodge, hotel and condominium owners collect a total of 9 percent in taxes on a room once the state’s 5 percent sales tax and 2 percent room taxes are added, too. In Sun Valley, they collect 10 percent. Among a sample of seven resort cities, only Park City, Utah, lodging owners collect a higher tax, at 10.35 percent.

"Once you’re getting into double digits, especially if you’re talking about the group market, you’re starting to get into a competitive disadvantage," Waller cautioned.

Ketchum retailers collect a 6 percent levy. Among the seven resort cities, Ketchum is the lowest. Aspen, Colo., is highest, at 8.6 percent.

Waller said the CVB has not started to gauge its members’ opinions on the additional 1 percent proposed in Ketchum. Speculating on the issue would be difficult, she added.

From interviews with a smattering of area business owners, it appears the proposal is getting mixed reviews.

Lodge owners, thus far, have landed more frequently on the con side of the fence.

"It may help Ketchum, but it helps strangle the retail and lodging communities that fuel the engine that drives the economy in Ketchum," said Tamarack Lodge owner Ken Carwin. "In times like this, when it’s tough for everybody, we ought to look at decreasing spending rather than increasing taxes."

Carwin pointed out that he has already lowered his prices to offset the slow economy. He said he would rather go back to charging regular rates than collect another 1 percent for the city.

At a public hearing in Ketchum last week, Allen Pennay, owner of Pennay’s at River Run, another lodging property, said this is no time to be talking about raising taxes. Tourism is on the decline, he said, and the city should not do anything that could encourage further decline.

Three local retailers who were interviewed last week, on the other hand, disagreed.

Bob Gordon, who owns Formula Sports, said he would support a 1 percent increase for land acquisition if the ultimate use were specific. Employee housing would be specific enough, he said.

"We have an incredible need for employee housing, and whatever we can do to institute that, the city and the county need to do it," he said.

Brian Kriesien, owner of KB’s, said that, while another 1 percent sounds like a lot, he may support an increase if land acquisition were focused on open space or affordable housing.

"More and more people are moving south," he said. "Housing just keeps getting pushed under the rug."

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When Sun Valley boosted its tax by 1 percent in 1999, the outcry from area business owners was enough to draw the attention of local state legislators, Clint Stennett and Wendy Jaquet, both Ketchum Democrats.

The tax is a "special privilege" given by the Legislature, Stennett said. I don’t want to overdo it, to where we lose local support. That would be my concern about doubling the rate in Ketchum."

Stennett pointed out that Idaho’s conservative Legislature rarely grants local control of taxes.

"It’s always tenuous," he said, "and we want to make sure we don’t have issues and problems at home, so we can keep it going."

 

The Idaho Mountain Express is distributed free to residents and guests throughout the Sun Valley, Idaho resort area community. Subscribers to the Idaho Mountain Express will read these stories and others in this week's issue.