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Whitefish Resort Tax Surges with New Lodging Accommodations

Twenty years after Whitefish implemented its resort tax, city has funneled $30 million to public works projects and property tax relief

Two decades after the implementation of Whitefish’s resort tax — and more than a year after voters bumped the once-controversial tax up from 2 percent to 3 percent — collections are surging just as the community adds a glut of hotel rooms to its inventory.

Montana is one of five states without a statewide sales tax, alongside Alaska, New Hampshire, Delaware and Oregon. Resort taxes, or local option sales taxes on luxury items and lodging, help tourist-dense communities like Whitefish balance the burden of paying for rising infrastructure needs.

The idea is that seasonal influxes of visitors place a higher degree of pressure on streets and public spaces, and local taxpayers shouldn’t have to bear all the financial responsibility.

In April 2015, Whitefish voters approved an increase from 2 percent to 3 percent in the resort tax, which applies to three economic sectors — lodging, restaurant food and drinks, and retail items.

Overall, with the additional 1 percentage point included, collections were up by 70.53 percent, or $145,428, this June compared to June of last year, when the 2 percent tax was in place.

The percentage point increase, which took effect in July last year, accounts for much of the increase, but this year’s addition of a new Hampton Inn also prompted collections on lodging to increase dramatically — from $39,483 in June of last year to $55,835 for June of this year, or a leap of 41 percent.

“That tells a pretty big story right there,” Whitefish City Manager Chuck Stearns said. “That’s a significant increase. And the one tangible change is the opening of the Hampton Inn and Suites, which didn’t exist last year.”

Prior to that development, there were already about 1,200 guest rooms in Whitefish, according to Whitefish Convention and Visitors Bureau Executive Director Dylan Boyle, not counting personal rentals such as Airbnb or VRBO.

Combined with the recent opening of the Firebrand Hotel, 161 rooms have been added to the local inventory this year, an increase of 13 percent in lodging accommodations, while the Whitefish City Council’s recent approval of a Marriott TownePlace Suites off U.S. Highway 93 South will add another 81 rooms.

Ever since the recession destabilized the valley’s economy, tourism has taken over as the largest basic industry in the Flathead, accounting for 19 percent of earnings in the county from 2012 to 2014, according to the Bureau of Business and Economic Research at the University of Montana. Nonresident travel is expected to grow about 3 percent per year from 2015 to 2018.

With that upward trend in visitation, Stearns said resort tax collections on lodging will continue to surge in the busy summer months, and the lag in outside visitation typical of the shoulder seasons is beginning to diminish, meaning demand for those rooms should keep climbing.

The biggest factor for the uptick in resort tax collections was the addition of a 1 percentage point resort tax increase, from 2 percent to 3 percent, which voters overwhelmingly approved last year to help finance the purchase of a conservation easement in Haskill Basin.

On an equivalent basis of the 2 percent resort tax this year compared to last year, resort tax collections in June were up by 13.7 percent, or $28,221. For the year-to-date, the comparative 2 percent resort tax was up 2.12 percent, or $46,777.

Since Whitefish began collecting resort taxes two decades ago, a total of nearly $1.6 billion in taxable sales has yielded nearly $31.9 million in collected revenues, with $1.6 million returned to vendors as an administrative fee. A total of $30.3 million is considered the “public portion.”

In Whitefish, tax revenues have paid for new roads, bike and pedestrian paths, park renovations, and various other community projects, including bleachers at the Whitefish ice rink and reconstruction of the Grouse Mountain tennis courts.

To date, $17.2 million has gone into street repair. Another $7.9 million has been rebated to Whitefish property owners, while $1.1 million has been used for park improvements.

Of the three economic sectors subject to resort taxation, lodging makes up 18 percent of resort tax collections, bars and restaurants 37 percent, and retail 45 percent.

In all, it has funded 41 public works projects to date.

Results are visible throughout Whitefish, and most tourists don’t notice the tax or aren’t bugged by it, Stearns said, particularly when comparing it to other resort towns, or their home states with sales taxes.

The Riverside Tennis Courts on Baker Avenue are currently being renovated, while the potholed corridors of Somers Avenue, State Park Road, Karrow Avenue, West Seventh Street, and East Edgewood Place are all slated for repair.

The resort tax was controversial in 1996 when it was put in place, and while some locals still gripe about it or opt to shop in Kalispell to circumvent it, the city’s adoption of a resort tax has generally been accepted as a positive, Stearns said.

That acceptance was no more evident than in April 2015, when Whitefish voters turned out to overwhelmingly approve the resort tax increase to help fund the Haskill Basin conservation easement by a margin of nearly 84 percent.

“You let me know any other tax increase that passed by 84 percent of the voters,” Stearns said. “I’ve never seen that in my career.”

By comparison, residents reluctantly passed the resort tax in 1996 with a 56 percent to 44 percent margin. In 2004, residents renewed the tax with a 76 percent to 24 percent vote.

Stearns said he believes that vote was somewhat swayed by tangible changes in the community, like “fewer potholes and new roads.”

The resort tax has been an “immense help” to the community of 6,700 residents, he said, raising about $2.5 million in fiscal year 2016, compared to $770,074 in 1997, the first full year of resort tax collections. Of the 2016 collections, 65 percent was put into roads, 25 percent into property tax relief, 5 percent into parks and trails, and 5 percent for vendors.

Stearns added that the revenue also has allowed the city to hire more police officers than other cities per capita.

The tax applies to consumable food served, which has led to some interesting interpretations. For example, if a person buys a doughnut and eats it at the location, it’s taxed. But if a person buys a bag of doughnuts and eats them at home, they’re not taxed.

Other Montana resort towns and communities have benefited from resort taxes of their own, according to the Montana Department of Revenue.

Virginia City, West Yellowstone and Red Lodge are the other Montana communities using the local option resort tax to their benefits. St. Regis, Big Sky, Cooke City, and Craig are the other resort areas with resort taxes. In all of the communities and resort areas, the tax is 3 percent.

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