Capturing Tourism Dollars for Public Safety

Voters in Columbia Falls will consider a resort tax in June; if enacted, more than half of revenue would go to public safety and 25 percent to property tax relief

By Myers Reece
Nucleus Avenue in downtown Columbia Falls. Beacon File Photo

Voters in Columbia Falls will have the opportunity in June to approve or deny a proposal to enact a resort tax, which city officials say will raise millions of dollars — $450,000 each year, conservatively, and perhaps considerably more — over the course of its proposed 20-year duration.

If approved, the city would become the 11th town or unincorporated area in Montana to implement a resort tax, including neighboring Whitefish. Columbia Falls’ proposal directs the revenue primarily to a property tax rebate, public infrastructure funding and the biggest chunk to public safety funding, most notably a staffed fire department. The city currently operates an all-volunteer fire department with a paid chief.

The city council held two public hearings in January to solicit public input on the draft proposal, which was crafted by an advisory committee consisting of city councilors and volunteer members of the public and then tweaked by the council. The council was also scheduled to discuss and fine-tune the proposal on Feb. 3, after the Beacon went to print, with a formal vote to approve it either at that meeting or an upcoming meeting.

“It’s potentially a good funding source,” Doug Karper, a longtime Columbia Falls city councilor, said. “It will mitigate the cost of providing services we need so our taxpayers don’t have to pay the whole bill.”

The Montana Department of Revenue defines a resort tax as a local-option sales tax that applies to a list of goods and services falling under the general categories of: hotels, motels and other lodging or camping facilities; restaurants, fast food and other food-service establishments; taverns, bars, night clubs, lounges or other public establishments that serve alcohol; and destination ski resorts or other destination recreational facilities. Columbia Falls’ proposal follows those category guidelines.

“The fundamental idea behind resort taxes is to allow places with high numbers of visitors, but relatively few residents, to manage the wear-and-tear on local infrastructure without overburdening local citizens,” the Department of Revenue states.

To be eligible for a resort tax, a town or area must meet certain population thresholds, as well as demonstrate that a major portion of the economy is based on tourism. The Montana Department of Commerce told Columbia Falls in April 2019 that it qualifies as a resort community. By state law, local voters must approve a ballot initiative outlining the tax rate, duration, effective date and allocation. Columbia Falls City Manager Susan Nicosia says the proposal will appear in the June 2 primary election.

The proposal calls for enacting a 3% resort tax on non-essential “luxury” goods and services sold by businesses only within city limits, and it exempts a long list of “necessities of life,” with the goal of minimizing impact on local residents and maximizing tourism dollar catch.

The state’s 10 other resort-tax communities also charge 3%, which is the maximum rate allowed by state law. When Whitefish approved its tax in 1995, it was set at 2%, but voters overwhelmingly approved an increase to 3% in 2015 to help finance the purchase of a conservation easement in Haskill Basin, the source of the city’s municipal water supply.

Exempted goods and services in Columbia Falls include appliances ranging from computers to vacuum cleaners to refrigerators; food purchased unprepared or unserved, i.e. everyday items from supermarkets; hardware supplies and tools; lodging with rental periods over 30 days; medicine, medical supplies and health care services such as doctor and dentist appointments.

Other exemptions include daily necessities such as diapers, cleaning supplies, soap, toilet paper, vitamins and many others, as well as utilities: telephone, internet, power, cell phones, propane and heating oil. While auto sales would be exempt from the tax, rentals wouldn’t because those are typically tourist products.

“What we tried to do was think, ‘Would a tourist buy this?’” Karper said. “If the answer was yes, then we’ll tax it. If the answer was no, we exempted it.”

“People who are just driving through the community and don’t pay taxes and cause the need for increased public safety — more calls for the fire department and police — that drives this,” he added. “If they can help pay for what they’re creating, that would be nice, instead of a relatively small tax base trying to foot the whole bill. If you look at ($450,000), that’s a lot of money for us as a small town.”

It’s up to individual businesses to collect the tax, and the proposal sets aside 5% of tax revenues for “administrative fees for businesses” to reimburse them for their efforts. The rest of the tax revenue would be distributed as following: 55% for public safety funding; 25% for property tax relief; 14% for public infrastructure funding; and 1% for city administration costs.

In addition to Whitefish, the other communities and areas with a resort tax in Montana are Red Lodge, Virginia City, West Yellowstone, Big Sky, Cooke City, Craig, Gardiner, St. Regis and Wolf Creek. Additional communities, such as Polson, Seeley Lake and Bigfork, have been approved for resort tax eligibility but haven’t enacted a tax.

Proponents of the tax in Columbia Falls point out that public sentiment has consistently grown more favorable over the tax’s lifespan elsewhere. For instance, the initial proposal in Whitefish generated controversy and passed by a margin of 56% to 44% in 1995. But voters reauthorized it with 76% approval in 2004 and then approved the tax increase in 2015 with a huge 84% majority.

“You let me know any other tax increase that passed by 84 percent of the voters,” former Whitefish City Manager Chuck Stearns said in 2016. “I’ve never seen that in my career.”

Whitefish has collected $42.3 million since 1996, including $4.3 million last year alone, its highest total yet. The city directs the lion’s share of its tax revenue to property tax relief and especially infrastructure, such as repair and improvement of existing streets, storm sewers, underground utilities, sidewalks and more.

Although resort-tax communities must follow luxury category guidelines, state law allows individual governments to tailor other criteria and revenue distribution to their specific needs, so long as at least 5% of revenue goes to offset local municipal property taxes. Exempted goods and services are broadly similar from community to community, but governments exercise discretionary decision-making authority.

“We’re exempting a lot of things that I think other communities are not exempting to make sure we’re not taxing our local folks more than we really need to,” Karper said.

Darin Fisher, a Columbia Falls city councilor, said the council closely examined other resort-tax communities.

“I like to think we took a lot of the best ideas from other cities and left behind the things that weren’t suited for Columbia Falls,” he said.

Fisher notes that the resort tax idea grew out of discussions over how to fund public safety, with the city identifying a paid fire department as a foremost priority. Fisher said city officials, based on their research, decided a resort tax would be a better funding mechanism than alternatives such as a public-safety bond.

“We need to support our public safety,” Fisher said. “Particularly with all the tourism traffic, we need a way to fund it. We looked at all the options, and we felt this was the best for our community.”

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