In an effort to seek parity between retailers in Sun Valley and Ketchum, the Sun Valley City Council decided last week to set a special municipal election in May to lower a portion of its local option tax. Voters will be asked permission to reduce the tax on defined hard goods from 3 percent to 2 percent, a rate closer to Ketchum's 1 percent retail tax.
Sun Valley's LOT on lodging and liquor by the drink would remain at 3 percent—as would the city's tax on restaurant meals and intangible goods, such as greens fees for golfers.
For years, some Sun Valley merchants have voiced agitation over the higher tax that shoppers face when they leave Ketchum and head a mile up the road.
There is no question that the LOT "provides a lot of good things to the community," said Bill Mason, of Bill Mason Outfitters of Sun Valley, during a public discussion last month. "All we are looking for is an equal playing field, and we don't have one right now."
Tom Keenan, owner of Towne and Parke Fine Jewelry in Sun Valley, told the council Thursday, March 15, he's pleased the matter will go to a vote.
"I'd like to thank you all for working so hard on the LOT," Keenan said. "If it was given the consideration (by past city councils) that you all have given it, there would not have been the disparity there was."
In order for the council's proposed change to the LOT to go forward, a 60 percent voter approval is necessary in the May 22 special election. If passed, the new tax cut would go into effect Oct. 1 and remain in place for 10 years.
The 1 percent drop in LOT on select hard-good retail sales would represent an estimated $89,000 loss for the city.
The thrust of council debate centered on how to fill the revenue stream that will be lost if the proposal is approved. Two potential revenue streams include a tax on building materials and lift ticket sales, both of which are currently exempt from LOT. The lift ticket tax will be included in the proposed changes and is expected to bring in around $7,400 for the city. The LOT on residential building materials was expected to bring in around $150,000, but was removed from the ordinance that will be placed in front of voters in May. LOT revenue composes approximately 23 percent of the city's total revenue.
The tax on building materials would have replenished the LOT shortfall. But, according to one council member, it would have increased revenue too much and from a source the LOT was never designed to siphon from.
"I said many weeks ago I don't like the building materials tax," said Councilman Blair Boand. "If we enact a 1 percent tax on building materials and lift tickets, we would come up with a huge net gain."
"The tax that we are deriving from this is predominantly from tourists," Boand added. "Taxing people who live here, regardless if they are second-home owners, doesn't make sense."
Councilwoman Ann Agnew sided with Boand.
Tourist-driven cities with populations less than 10,000 were granted LOT collection authority by the Legislature to help mitigate the effects of tourism on property tax-paying residents.
"I believe if you pay property taxes in this town, you are contributing to this community," Agnew said.
Councilman Nils Ribi disagreed.
"To say residents shouldn't pay LOT—well, you just made an argument to eliminate LOT altogether," Ribi said. "We are a tourist town and we all contribute to the effects of tourism. I contribute when I eat at the LDR (Lodge Dining Room) ... and I receive the benefits on occasions when I ride the KART bus."
Ribi argued that income derived from LOT "is a revenue we cannot afford to lose," and in the end goes to protect Sun Valley homeowners through the services offered by the city.
Perhaps the biggest surprise of the discussion was Mayor Jon Thorson's about-face on the building materials tax.
In a work session on Feb. 14, Thorson said "special interests have got their way (referring to the LOT exemptions on lift tickets and building materials)."
However, on Thursday, Thorson marched to a different drummer.
"I have since changed my position and the reason I have changed is because I think we take the risk of having LOT looked at in an adverse way by the Idaho State Tax Commission," Thorson said. "I am not nervous over whether we will make up for that (the loss of LOT on building materials)."
In a phone interview Tuesday, Thorson said he suspects the natural growth of the community will increase LOT revenue over time.
In the end, the council's vote to go ahead with a special election in May was unanimous.
