Wednesday, July 5, 2006

Sun Valley eyes changes to local option taxes

City considers tax on building materials

Express Staff Writer

Tom Keenan, owner of Towne & Parke Fine Jewelry in Sun Valley, left, and Bill Mason, owner of Bill Mason Outfitters, also in Sun Valley, said they both believe the city's local option tax structure can be too burdensome on small businesses. Photo by Willy Cook

Is Sun Valley tapping the right wallets for the right reasons?

"To me, it's time to think about ... who should pay for what," City Administrator Virginia Egger said.

The Sun Valley City Council took a hard look at changing the structure of local option taxes Thursday, June 28, during a review of the city's 2006-2007 fiscal year draft budget. In light of an updated revenue analysis and a five-year capital improvement plan, city officials evaluated various scenarios to appropriately fund future capital projects such as land acquisition and open-space protection.

"One of my pet peeves is the local option tax," said Tom Keenan, owner of Towne & Park Fine Jewelry, in Sun Valley. "While I agree it is needed ... merchants like myself are at a disadvantage when competing against Ketchum and Hailey."

Sun Valley collects a 3 percent local option tax on lodging receipts, liquor by the drink and retail sales. The tax exempts ski lift tickets and building materials, a policy that was effected in 1999. The council considered reinstating both of the taxes in light of a changing community, specifically, a shift to a second-home economy.

"They (the second homeowners) choke the community, and the only one alive at the end of the day is the second-home owner," Sun Valley Mayor Jon Thorson said.

The council proposed reinstating a building-materials sales tax to effectively account for the strain from second-home owners on the city. The city previously collected a 1 percent tax on building materials for six years, but voters eliminated the building materials tax in September 1998.

"The second-home owner does not pay a lot of local option taxes. It appears, predominately, that the tourist pays the majority of LOT," Egger said.

The construction of extravagant homes creates a need for workers. Some believe that providing for additional workers, such as construction laborers, landscape workers, cleaning personnel and firemen, exacerbates housing needs and strains the city's personnel.

"The whole idea is that growth needs to pay its own way ... so that current property tax payers aren't paying for the growth on infrastructure," Councilman Nils Ribi said.

The draft budget sets out a hypothetical situation, that if the city were to impose a 2 percent tax on building materials for the 2006-2007 fiscal year, the city would collect $173,000. The tax would be imposed at the time of a building permit, on materials, not on labor, and would not apply to materials brought to the city from outside the jurisdiction. The city expects the money to be received before issuing a certificate of occupancy.

Ketchum imposes a 1 percent local option tax on the sale of building materials. The city also collects a 1 percent local option tax on the sale of retail goods and a 2 percent tax on lodging rentals and sales of liquor by the drink. Hailey has a 3 percent rental vehicle tax, a 3 percent hotel and motel room tax, a 2 percent liquor by-the-drink tax and a 1 percent restaurant tax. Hailey's local option taxes were implemented in May.

To align with neighboring tax rates, officials evaluated Sun Valley's existing taxes and identified potential funding sources. According to projections, the city has sufficient funds to carry out programs through the 2008-2009 fiscal year. To fund future projects, the city could also increase the bed tax.

"I like the bed tax of all the things I have heard ... As tourism increases, it does put a demand on our economy," Councilman Blair Boand said. "To me it's a no-brainer. To me 5 percent is a screaming deal."

Implementing taxes on ski lift tickets also found favor among the council members.

"If there is one thing in the world that needs to be in the LOT, it's the lift ticket," Ribi said.

According to the city's projections, a 3 percent tax on ski lift tickets sold within Sun Valley, would bring the city $73,300. The city of Ketchum presently collects a 1 percent tax on lift tickets.

Changes to the LOT structure would have to be approved by voters.

The council directed city personnel to evaluate scenarios with different tax rate structures. The city will present the scenarios July 20 during a public hearing to consider the proposed 2006-2007 fiscal year budget. The city's LOT rates and taxable sales will continue through January 2011, unless brought before the voters for a change.

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