Resort tax glitch could nullify 2004 sunset vote

Local-option tax proposal could also affect city tax

By RICHARD HANNERS / Whitefish Pilot

Typically, as soon as someone starts talking about Whitefish's resort tax, people say leave it alone, don't fiddle with it, it's the goose that lays the golden egg. They point out how difficult it was to get the tax approved by the voters in the first place. Bring it back to the voters and it may not pass, they argue.

Whitefish voters got a second chance to vote on the resort tax in November 2004 when they voted 3-1 to extend its life from 2016 to 2025. The voters' overwhelming approval showed that while Montanans generally don't support a sales tax, Whitefish voters understood the resort tax's value to the community.

About 200 businesses in Whitefish pay the 2 percent resort tax, which is used for street reconstruction, property tax rebates, and parks and trail projects.

Sixty-five percent of the resort tax money goes into streets, adding up to more than $8 million since the tax was put in place in February 1996. The property tax rebate has also lowered the effective mill rate from 111.21 to 87.68, reducing city property taxes by 21 percent.

A new reading of the state statutes authorizing Whitefish's resort tax, however, has put the validity of the 2004 election in question. Montana law limits the population of towns seeking a resort tax to no more than 5,000 people, based on federal census "or federal estimate."

Former city manager Gary Marks says in his final memo to the city council that he did not recall reading the phrase "or federal estimate," and he later learned from city attorney John Phelps that the federal government provides population estimates every year.

Furthermore, Phelps found that Whitefish's population exceeded 5,500 at the time of the 2004 election, according to the federal estimate.

Marks urged the city council to discuss the matter more with Phelps. If the election turns out to be invalid, Marks urged the council to work with local legislators to draft a bill for the 2009 legislature that would increase the population cap for resort tax communities to at least 10,000.

The voters' overwhelming approval in 2004 would make a strong case for support of such a bill, Marks said. If the change was made, then the ballot measure should be brought back to the voters for approval, he said.

That might not be the only legislative issue facing the city's resort tax. Marks also told the councilors that leaders of the Montana League of Cities and Towns will likely present a bill to the legislature allowing cities, towns and counties to enact voter-approved local-option sales taxes.

Marks was concerned the new law, if passed, might nullify Whitefish's resort tax.

"It will be important that any bill introduced on this subject contain a clause that 'grandfathers' communities with pre-existing resort taxes," he said.

The "new willingness" of some city leaders to find compromises favoring passage of a local-option tax bill give such a bill an even chance of passage, Marks said. One up-and-coming bill calls for capping the local-option tax at 1 percent and requiring that 25-50 percent of the revenue go to the state for redistribution.

"Clearly, such a tax would not be a good replacement for the existing Whitefish resort tax," he said.

Ironically, Marks' willingness to "tell the Whitefish story" to legislators — detailing the resort tax's success in Whitefish — helped the League promote the local-option tax idea.

Marks sat on the League's legislative committee for the past seven years, and someone needs to step up and fill that seat, he said, adding that the League supports "grandfathering" Whitefish's resort tax.