How to tax a tourist: Revenue debate at borough assembly seeks to target visitors

The Kenai Peninsula Borough is trying to figure out the best way to use tourists’ money to pay for its government.

In the past year, the borough assembly has debated three different iterations of a temporary lodging tax, commonly called a bed tax. The assembly voted down the tax twice, largely due to objection from the lodging industry.

The most recent iteration, proposed by Assembly Member Dale Bagley, would ask voters in the October election for approval to place a 12 percent sales tax on temporary lodging, defined as any hotel, motel, RV space or accommodations rental of less than 30 days. It would exempt lodging from the general 3 percent borough sales tax to avoid stacking taxes too heavily on the industry.

The proposal also would provide that cities could adopt their own bed tax and take up to half of the 12 percent borough rate. That would allow cities to take a cut of the revenue without piling more taxes on lodges in the cities.

Bagley has sponsored bed tax proposals twice before in the past year.

The latest proposal would raise between $2 million and $3 million per year, depending whether lodging is exempted from the general sales tax. The new revenues would partly covering the borough’s estimated $4 million budget gap. Most cities and boroughs in Alaska already have a lodging tax, he wrote in his memo to the assembly. The rate in Anchorage is 12 percent; the Matanuska-Susitna Borough is at 5 percent.

“Several hundred thousand visitors travel to the Kenai Peninsula each year, and while they contribute to the area’s economy they also create a large demand on public services in the borough,” he wrote.

Alaskans have long tried to figure out ways to tax visitors to fund public services. But trying to target visitors is a complex equation. Lodge owners opposed to the bed tax have said it’s unfair to specifically target one industry, and instead have backed a sales tax increase or an increase in the cap on taxable sales. The latter failed at the ballot box last year; the assembly will debate increase a ballot proposition to increase the sales tax rate from 3 percent to 3.5 percent at its Tuesday meeting.

For Sharon Brower, who owns the Grouchy Old Woman Bed and Breakfast on Daniels Lake in Nikiski, taxes are a necessary evil. But a bed tax that goes directly to the general fund without committing to marketing funding to bring more tourists to the peninsula doesn’t sound great either, she said.

“When the (bed and breakfast) association was first looking at a bed tax (in the past), we were looking at it because Mat-Su has easily four times more spent for tourism marketing than we do on the peninsula,” she said. “So we were looking at taxing ourselves. At the time we were pushing it, but … by the time we got to the assembly” the proposal was that only 10 percent of the tax collections would go to tourism marketing, “and we didn’t support that.”

Visitors pay a bed tax in most regions of Alaska and the nation — the Kenai Peninsula is one of the few without one. But when higher taxes have been proposed on visitor services like the cruise ship industry, the operators have objected, Brower said.

Lodge, motel and hotel operators already charge sales tax differently than other businesses on the peninsula. They calculate taxes on a per-person, per-night basis, regardless when the total bill exceeds the $500 tax cap for most other goods and services in the borough.

A targeted tax misses out on a lot of the money tourists spend on meals and goods, said Dick Erkeneff, owner of Kenai River Raven Lodge in Soldotna.

“If you’re going to tax visitors, why pick lodging? It’s an easy way to do it,” he said. “But separating out the lodging and RV parks is just not a good thing. It hits just a limited segment of the population of visitors.”

The Alaska Travel Industry Association’s most recent Visitor Statistics Program Report found that more than 500,000 out-of-state visitors came to the Kenai Peninsula in 2016. However, that doesn’t include visitors from elsewhere in the state, particularly Anchorage and the Matanuska Valley. Erkeneff said a significant number of his visitors come from Anchorage, and a bed tax would hit them the same way it would hit out-of-state visitors. He said he favored a sales tax increase because it hits everyone evenly.

“There isn’t the process of how to tax (just visitors),” he said. “The reason (the assembly members) want to raise the sales tax or create a bed tax is because we already have the system for it.”

The Kenai Peninsula isn’t the only community looking at a bed tax to help underwrite the cost of services. Carol Fraser, the outreach and sales manager for Aspen Hotels, said the hotel chain has seen it in several communities, including Sitka. The hotel chain opposes targeted taxes that go to the general fund because it isn’t fair to the industry, she said.

“We’ve always been against targeted taxes,” she said. “We’re really not taxing the tourists. Partially it is, but then look at all the Alaskans that come down to the Kenai Peninsula for fun, business meetings … they don’t have to go to Kenai. They can always go back the same day.”

Aspen Hotels operates hotels in Kenai and Soldotna and is planning to build a 72-bed hotel in Homer, scheduled to open in 2019. The hotel opening has led to cruise ships changing their routes, planning to come to Homer in 2019, Fraser said. That increases sales taxes and cruise ship taxes for the city, which is a better way to increase revenue to the city and borough than targeted taxes like bed taxes, she said.

“If we do a bed tax on the Kenai Peninsula, and that money is used specifically to target to get more tourists there, we could support that,” she said. “But if it’s just use for the general fund, we can’t support that.”

The assembly will discuss and finalize its fiscal year 2019 budget on Tuesday. The bed tax proposal is scheduled for a hearing at the June 19 meeting.

Reach Elizabeth Earl at eearl@peninsulaclarion.com.

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