Steamboat City Council to consider some new form of tax to counter over-reliance on sales tax
STEAMBOAT SPRINGS — COVID-19 has exposed how reliant the city of Steamboat Springs is on sales and use tax as its sole source of revenue. But that could be changing.
Steamboat Springs City Council will discuss at its regular meeting Tuesday whether or not to add a new form of tax in addition to its current sales tax to diversify the city’s method of generating revenue.
Steamboat voters in 1979 opted to eliminate the city’s property tax and instead rely solely on a 4% sales tax, which the city sustains due to its high tourism.
However, city officials said while sales tax is competent, it is not sustainable enough, particularly with growing concerns about how COVID-19 will impact Steamboat’s traditionally busy winter season.
Currently, 68% of the city’s revenue comes from sales tax, but Gary Suiter, Steamboat Springs city manager, said sales tax revenue can be difficult to predict. There are also many external factors, such as wildfires, low levels of snow or an economic recession, that can negatively impact sales tax revenue.
“Sales tax is not stable enough, it’s too volatile,” Suiter said Monday. “It’s enough to provide basic services, but in a low snow year or in a recession or pandemic, the sales tax drops off.”
Suiter and City Finance Director Kim Weber will ask council members Tuesday to choose two to three categories from which they’d approve of proposing a new tax. Options include placing a tax on property, lodging, timeshares, creating a lift tax or a “sin” tax, which is an excise tax put on items deemed harmful to individuals and society.
A new property tax would apply to land and buildings and would be calculated by multiplying the assessed value of property by a mill levy; lodging would tax the room rental rate of hotels, motels, bed and breakfasts and other lodging establishments; a lift tax would apply only to Steamboat Resort and would be charged with the price of a lift ticket; and timeshare would apply to short-term lodging within the city.
The city also will discuss the potential to charge for parking within the city, which they do not currently do.
“I see this as the first step to come up with something reasonable and something that the voters will embrace,” said council member Kathi Meyer.
If council comes to a consensus on which, if any, categories to tax, voters would have to approve such a decision before a tax would be implemented.
While the city has discussed exploring another revenue source for years, COVID-19 and its impact on sales tax revenue made the topic more timely and important, Weber said.
“COVID brought it to the forefront of everyone’s minds how dependent we are on sales tax revenue,” she said.
Each potential revenue category has pros and cons, Suiter wrote in a report to council. With lodging and lift tax, a portion of revenue responsibility would be placed on visitors, rather than entirely on year-round locals, but representatives from both industries have stated they do not want visitors to pay for services they do not use.
The “sin” tax on alcohol, tobacco and marijuana is often more popular than other forms of tax, the report states, but is also seen as regressive and burdening low-income people at a disproportionate rate.
A timeshare tax would make the system more equitable, the report states, as many timeshare users do not pay taxes on their timeshare lodging, but would likely face opposition from the American Resort Development Association.
With uncertainty surrounding the winter season and potential changes to ski resorts, Suiter said he is “not super confident” about sales tax income the city will receive in the winter.
“Living in a ski resort, there’s always some level of nervousness about that,” he said. “If there’s a pandemic, that certainly creates uncertainty, which in turn creates nervousness, especially with the recent spike, that adds to the uncertainty.”
While sales tax has provided funding for city services, a new tax would help meet the burden of what residents expect from city services, particularly core services such as fire, emergency medical, law enforcemen and transit.
“It just makes sense to have a more reliable funding source going toward what has been referred to as core services,” Weber said.
To reach Alison Berg, call 970-871-4229 or email aberg@SteamboatPilot.com.
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