What kinds of businesses will be responsible for charging, collecting and remitting a local option (sales) tax, if the frame work for implementing such a tax is approved by the Montana State Legislature and a community adopts the tax? The answer is: primarily those businesses which most directly serve tourists and other visitors to the community. Other businesses could be obligated to the extent they sell items not considered necessities. The target is restaurants, fast food stores, bars, nightclubs, liquor stores, theaters, ski resorts, recreational services, tickets for entertainment, retailers of sporting goods, curio, souvenir, art or gift shops, and hotels, motels and other lodging or camping facilities. The scope of what is to be taxed, in the final bill draft, has been narrowed somewhat compared to earlier discussions by promoters of the legislation, which includes the Chambers of Commerce of some of Montana's larger cities. The change in scope evolved as part of negotiations in gaining the buy-in of the Montana Infrastructure Coalition, which recently announced its support for the tax as presented in the bill, LC2325, which has been introduced by Sen. Mike Phillips, (D) Bozeman. The MIC is an association of over 70 public and private organizations - including the Montana Chamber of Commerce - involved in the design, construction, finance, operation and maintenance of Montana infrastructure. They support policies to provide more funding for Montana's infrastructure needs. How the revenue generated from the local option tax may be used has also "been narrowed slightly from before," according to Daniel Brooks, Government Affairs Manager for the Billings Chamber. "Previously the proposal included any capital improvement project, and presently it is narrowed to items in the list of revenue uses, along with locally prioritized public facilities." Another change in the proposed legislation is the elimination of the requirement that an ordinance, put before voters, would have to specify what projects the revenue would fund. "There is flexibility … that allows for a broader usage such as 50% towards roads and 30% towards wastewater and sewer, or some other combination similar within the bounds of the definition of critical infrastructure..." explained Brooks. The Chamber and other local organizations, like the Billings Alliance, are most interested in being able to develop amenities such as parks, bike trails or historic landmarks that are attractive to tourists and work force. The local option tax proposal, now, more closely mirrors the tax after which it is being modeled - a sales tax that was specially designed for resort or tourist communities in Montana, which had no other means to raise funding for infrastructure. West Yellowstone was the first to implement the tax. Other tourist communities, like Red Lodge and Whitefish, have since adopted the tax. Local option tax proposals for larger cities, which are not solely reliant on tourism, have gone down to defeat in several past state legislatures. But the concept is being pursued as essential by the Chamber to help finance projects that they believe would improve the quality of life in Billings and attract more people - visitors and potential workforce - to a community. When the tax was being proposed to be levied against a broader range of goods and services, it was estimated that at two percent the tax would raise over $100 million in Billings, annually.
Reducing the targeted goods and services to just those most likely to be purchased by tourists and visitors, reduces, considerably, the projected revenues; but, promoters have not determined what that sum would be. Part of the problem, according to Brooks, is not having access to very good data that could be used in making such a projection. Local governments will have latitude to refine, to some extent, the list of what is taxed, but it must be part of the ordinance placed before voters. The ordinance must also set out the tax rate under the legislated cap of 4 percent (also a change from the earlier proposed cap of 3 percent), and make clear when the tax would be collected and who would collect it. The bill states that "Establishments that sell luxury goods and services shall collect a tax on the luxury goods and services." It excludes the sales of goods sold for resale. Red Lodge, where a 3 percent sales tax has been imposed since 1997, has an ordinance that outlines: "All luxuries shall be taxed, and luxuries' shall mean any gift item, luxury item or other item normally sold to the public or to transient visitors or tourists; but the term does not include food purchased unprepared or not served, medicine, medical supplies and services, appliances, hardware supplies and tools or any necessities of life." Whitefish, which began their tax in 1995 and imposes a 3 percent tax, has a similar description of taxable goods in their ordinance, and further identifies "attractions," such as arcades, bowling alleys, concerts, golf courses including rentals, green fees, memberships, etc. Movies and live theater ticket are identified for taxation, as is rodeo tickets. So are rentals of automobiles, RV's, etc., conference or meeting room space, motorcycles, bicycles, video games snowmobiles, boats, jet skis, etc. Clothing is also taxed in Whitefish, but in Red Lodge the ordinance makes no mention of clothing except to say that new clothing items that are screen printed, as are commonly sold to tourist as souvenirs, will be taxed. Other items taxed include books, jewelry, pets, supermarket non-food items and services provided by guides and outfitters, etc. The local option tax would be an addition to the resort tax (7 percent) and the local Tourism Business Improvement District ($2) fee that is currently imposed on the cost of a room. Brooks said that the total of the three taxes still keeps the total addition to the cost of lodging in Billings below the $13 threshold at which experts believe it makes a difference in a customer's choice about where to stay.
Both Red Lodge and Whitefish require that businesses remit the taxes collected, quarterly, to the city clerk. Brooks said the City of Billings has not detailed how they would collect the tax, nor how much the process might cost. Businesses collecting and remitting the tax are required by the law to be reimbursed five percent of the amount of tax collected for their efforts. Penalties for failure to report local option tax collected and remit them include a fine not to exceed $1,000 or six months imprisonment, or both. If the governing body prevails in a suit for the collection of local option taxes, penalties not to exceed fifty percent of the local option tax due may be imposed. The governing body may also revoke any business license that has been granted to the offending business owner. Enforcement provisions can be determined by the community enacting the tax but it must be included in the ordinance presented to the voters. Brooks speculated that the governing entity could implement spot audits of businesses to make sure that they are in compliance. The state law authorizes the governing body to gain access to all books, records, or documents of a business to investigate whether they are in compliance. The draft legislation retains the requirement for a sunset provision which must be part of the ordinance that a city or county would have to get approved by voters should they want to implement the tax. On the sunset date the ordinance would have to go back to the voters to be continued. Red Lodge has a sunset of 25 years and Whitefish set a sunset provision of 29 years. The legislation also makes possible the imposition of more than one local option tax proposal and details how they would have to work together.