Friday, February 16, 2007

Sun Valley looking for tax parity

City officials debate plans to alter local option taxes

Express Staff Writer

James Wormworth, a frequent visitor to Sun Valley, enjoys a drink and takes care of business at the Duchin Lounge in the Sun Valley Lodge. Although still under debate, changes to the local option tax in Sun Valley could lower the cost of his drink while increasing the charge on his room. Photo by David N. Seelig

Debate over the city of Sun Valley's 3 percent local option tax reached a fevered pitch at a Sun Valley City Council work session Wednesday, Feb. 14. Long-standing retailers called on the city to create a level playing field to allow fair competition between Sun Valley merchants and those in Ketchum, who face only a 1 percent city-imposed tax.

"I understand that local option tax is designed to garnish funds for tourists," said Tom Keenan, owner of Towne and Parke Fine Jewelry in Sun Valley. "Customers know if you want to buy something from us you are going to have to pay more. Businesses in Ketchum use this against us."

As it stands, LOT allows for the collection of a 3-percent tax on the sales price of hotel and motel room charges, short-term vacation rental charges, by-the-drink liquor sales and most retail sales transactions except for those involving building materials and ski lift tickets.

The proposed LOT changes would lower the hard-good sales tax from 3 percent to 2 percent, subject lift ticket and building materials to LOT, while maintaining a 3 percent tax on all other purchases. The exact definition of hard-good sales, however, has yet to be agreed upon.

The LOT is "our life blood," Sun Valley Mayor Jon Thorson said. LOT collections made up 23 percent of the city's revenue last year.

"I am personally not comfortable if we leave this room without saying that we are moving closer to parity," with the city of Ketchum, Thorson said.

Keenan was not alone in his objection to the apparent lack of parity between Sun Valley's LOT and its neighboring city, located one mile to the west.

The distance between the two towns, "is the world's longest mile," said Bill Mason, owner of Bill Mason Outfitters of Sun Valley, "because people just don't come up to Sun Valley to shop."

Mason, who has owned and operated his business in Sun Valley for 27 years, discounted Thorson's notion that increased competition in the valley may be the paramount factor in the deflation of business.

"The competition seven or eight years ago is the same as it's been," Mason said. "Licensees have changed hands, but it's roughly the same number of businesses."

Sun Valley Co. General Manager Wally Huffman supported Mason's assessment of the LOT's effect on local business.

"There are more people in Sun Valley in the summer than 10 years ago," Huffman said. And while the numbers in the winter have remained constant, "summer business has grown. This is significant in that the level of business for local stores has not grown with the level of guests."

"It is remarkable. Not only does 2 percent (the 2 percent differential between Sun Valley and Ketchum's LOT) make a difference, it doesn't stop there," Huffman continued. "I can't tell you how many people don't want to pay taxes at all and will actually have stuff shipped home to avoid it."

Tourists who purchase goods in Sun Valley face a 9 percent tax when all is said and done, with a 6 percent tax levied at the state level and the city's 3 percent tax atop that.

"It's the principal of it. When you tell people they pay 9 percent, it floors them," Keenan said.

Carol Waller, executive director of the Sun Valley-Ketchum Chamber & Visitors Bureau, whose very position often makes her the de facto liaison between private business and the municipalities in which they operate, tried to walk the fine line between the two.

"It (LOT revenue) is a very important revenue stream of the city and is designed to enhance services and development and to reinvest to advance tourism," she said. "The tax should help commerce and the community, and not just two or three local businesses."

Waller conceded, however, that "there is a level at which it negatively impacts business."

The LOT is such a significant source of revenue for the city that if the proposed changes are passed the city could face a $2.1 million financial shortfall in its capital improvements budget in three years, Thorson said.

If parity is to be achieved, city LOTs must generate additional revenue elsewhere.

The council and the business representatives in attendance debated three potential revenue streams including lift tickets and building materials, which are as yet untapped, and potentially raising the bed tax, which stands at 3 percent, for hotels in the city limit.

Specifically, the city is looking to impose a 1-percent tax on lift tickets and building materials and an increase in the bed tax between .25 percent and 1.5 percent. Building materials will be estimated by assuming half of the proposed cost of new developments will be material costs and then a 1-percent tax will be levied on that figure. All three proposed changes would predominantly affect one entity, Sun Valley Co.

"I wouldn't be thrilled (with the lift ticket tax), but I would understand it as long as the tax base remains somewhat revenue-neutral," Huffman said.

As for the bed tax, Huffman said the biggest obstacle to increasing occupancy rates lies in the difficulty potential guests face in getting to Sun Valley. Huffman noted Sun Valley Co.'s yearly effort to attract large ski groups to the area for winter trips.

"Seldom do we land a ski group, and it's not because of our room rates, which are significantly less than our competition ... It's because they can't get here. And if they can, they spend $200 to $300 more per person in airfare than they would if they go to someplace in Colorado," Huffman said.

"Will a 1 percent increase on room charges significantly drop our business? I don't know. Will it help? No."

The potential building materials tax raised concerns of local business owners and council members alike.

"I am having a lot of difficulty (with the building materials tax) to replace a tax that is obviously paid by tourists with one that is paid by local homeowners and developers," said Councilwoman Ann Agnew.

Councilman Nils Ribi spoke to Agnew's concern.

"Seventy percent of new homes and condos are for the resort and tourism business. They are second homes. They are not here to live. They are here for the amenities."

The council debated and appeared to agree on the idea that construction of businesses that will provide a steady and perpetual revenue stream to the city should be exempt from the building material tax. Hotels are a prime example because they would provide bed-tax to the city, and customers are expected to spend money while in town on goods that are also subject to LOT collections.

"Taxing materials for a hotel that is going to generate LOT infinitum is stupid," said Councilman Blaine Boand.

In the coming months, City Administrator Virginia Egger and staff will plug in numbers and assess potential impacts. The findings will be presented March 15. The matter will be placed in front of voters for final approval, possibly as early as March 22. Restructuring of the LOT will require 60 percent voter approval.

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