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HomeMy WebLinkAbout2017-10-10 PACKET 06.03. TO: Economic Development Authority FROM: Matt Wolf, Economic Development Assistant DATE: August 30, 2017 RE: Local Lodging Tax Background At the June 13, 2017 Economic Development Authority Meeting an inquiry was made regarding the use of a local lodging tax as a tool for attracting hotel developments in the community. Discussion The Minnesota State Legislation under statute 469.190 gave cities the authorization in 1983 to impose a local sales tax by ordinance of up to 3 percent on the gross receipts from lodging at hotel, motel, rooming house, or resort. Any boarding facility that is not rented or leased over a continuous period of 30 days or more. Please, see attached list for all cities that have a lodging tax established via ordinance. Of the gross proceeds from all lodging tax imposed under the statute, 95% must go to fund a local convention or tourism bureau for the purpose of marketing and promoting the city. The funds may not be used for direct subsidies for lodging facilities, façade improvements, signs for specific facilities, room subsidies, or other non- marketing/promotion expenses. The remaining 5% are kept by the municipality to administrate the funds. As part of the statute the city that imposes such a tax may negotiate with the Department of Revenue to collect the lodging tax. The Department of Revenue is allowed to retain from the collected revenues an amount to cover the costs of collection. However of the cities that were contacted (Stillwater, Hastings, Willmar and Marshall) they all collected the tax themselves through the use of an on-line form that was submitted by the hotel or motel to the respective cities finance departments. The Cottage Grove Finance Department is able to perform the required paperwork and has the staff capacity to do the work required if such a tax would be implemented. The disposition of funds a wide variety of activities and programs. To give some examples of how it is used and define programs that result from the lodging tax, four Minnesota cities were contacted along with one of our hotel owners. Hastings, MN was contacted and they direct 95% (2015 that equaled $56,924) of their lodging tax to their local Chamber of Commerce, which as a result expanded to include a tourism bureau. The Hastings Chamber & Visitors Bureau uses 15% or $8,539 of that money to cover the costs of overhead (i.e. staff) the remainder $48,385 is used by the chamber to fund the website visithastingsmn.org and fund on-line and print ads with a focus on biking and bird watching. Annually the Hastings Chamber and Visitors Bureau presents to the City of Hastings on how they spent the money and how they plan to spend the money in the next year. Willmar, MN is similar to Hastings in that they run their lodging tax revenue through their local area chamber. To use the funds the chamber created a branch resulting in s Bureau, which reports to a separate 17 member Board of Directors. The Willmar Conv their Convention Center, run advertising featuring their hotels in publications, and run the website willmarlakesarea.com. Stillwater, MN partnered with Oak Park Heights to implement their tax. With the lodging tax they entered into a contract with the Greater Stillwater Area Convention and Vis Bureau to use the funds. Of their lodging tax 95% or $188,616 in 2015, was used for funding discoverstillwater.com, retaining ads in on-line and print publications, and run an event sponsorship grant program. Marshall, MN implemented a lodging tax of 3% and as part of the ordinance created a Convention & Much like a planning commission or an economic development authority t Mayor and confirmed by the City Council. For the year ending 2016 Marshall, MN had a total of $162,520 of lodging tax revenue. These funds were used to hire city staff, run the website visitmarshallmn.com, and run online/print ads. Roshan Patel, owner of the Cottage Grove Country Inn and Suites was also contacted to gauge his overall opinion of the lodging tax. Roshan was in support of the tax and believed that in the other communities that had the tax where his hotels were located it was a benefit. Roshan felt that a key area of focus for Cottage Grove in promoting the local community was as a wedding destination and business executives/trainings. The two categories made up the majority of his customers and he believed those industries should be targeted in any advertising. Roshan also felt strongly that hotels in the community needed to have a seat on whatever board was established. Hotel owner/manager representation on the board of the controlling funds was a common theme among the communities who implemented the tax. Along with key sector representatives where marketing was being targeted (i.e. Wedding Venues and Local Corporations). For each community the amount the tax generates depends on how many rooms they have that meet the criteria set in the statute and the overall occupancy rate of each hotel. Working with Ehlers Inc. an estimate of the annual amount of lodging tax was generated based on current and potential lodging in the City of Cottage Grove. This includes the Country Inn and Suites, Wakota Inn, Hope Glen Farm and a potential hotel development located at 7855 Harkness Avenue. Assuming a maximum tax of three percent was implemented under MN statute 469.190, the average cost of the room was $92.17 and a 62.4% occupancy rate for each hotel. The City of Cottage Grove would generate $66,127 in annual lodging tax with a potential for an additional $40,936. Bringing the total to $107,062. See the example below given by Ehlers Inc.: City of Cottage Grove Lodging Tax Concept Analysis ВΉЊБΉЋЉЊА Estimated Gross Annual Total Estimated Room Maximum Average Daily Annual Lodging Revenue Lodging Tax* Rooms Rate (ADR) Occupancy Tax ЊЉЎ υВЋ͵ЊА ЏЋ͵Ѝі υЋͲЋЉЍͲЋЋА Ќі $66,127 Existing Less 5% Ώ Ώ Ώ ($3,306) Total ЊАЉ υЌͲЎЏБͲАЍВ $62,821 City of Cottage Grove Lodging Tax Concept Analysis with Additional Hotel ВΉЊБΉЋЉЊА Estimated Gross Annual Total Estimated Room Maximum Average Daily Annual Lodging Revenue Lodging Tax* Rooms Rate (ADR) Occupancy Tax ЊЉЎ υВЋ͵ЊА ЏЋ͵Ѝі υЋͲЋЉЍͲЋЋА Ќі $66,127 Existing ЏЎ υВЋ͵ЊА ЏЋ͵Ѝі $40,936 υЊͲЌЏЍͲЎЋЋ Ќі Additional Ώ Ώ Ώ ($5,353) Less 5% Total ЊАЉ υЌͲЎЏБͲАЍВ $101,709 *Maximum Lodging Tax is 3% of gross receipts per MN Statutes 469.190 Metropolitan Area Using the above analysis, if Cottage Grove followed the other three cities use of the funds. The maximum allowed by the state statute of 5% or $5,353 would be kept by the City of Cottage Grove of the $107,062. The remainder of the funds or $101,709 would be used for marketing and promoting the city, in one of three ways: 1. The City of Cottage Grove enters into contract with the Cottage Grove Area Chamber of d to them to use in accordance with the statute. This would be the same model used by Hastings, MN and Willmar, MN. Economic Development Authority August 30, 2017 Page 4 of 5 2. -profit organization. After the City of Cottage Grove would enter be the same model used by Stillwater, MN 3. The City of Cottage Grove as part of the ordinance starting the lodging tax establishes a ureau. As part of the ordinance rules and operating procedures would be put in s Bureau that much like the EDA or Planning Commission would be an official committee of the City of Cottage Grove. This would be the same model that is used by Marshall, MN. 4. The City of Cottage Grove decides to not establish a lodging tax. Option A: Lodging funds would be distributed to them via the City of Cottage Grove in accordance with State Statute (Hastings, MN and Wilmar, MN Model) PROS CONS Chamber is an established City has less control on how organization and strengthens funds are spent partnership No need for new city staff or Chamber needs to establish increased staff workload new committee and staff to operate funds Option B: -profit organization. Cottage to use the funds in accordance with State Statute. (Stillwater, MN Model) Who handles creation of the promotion of community. non-profit? Low overhead costs Need to hire full-time staff to carry out goals. Option C: Bureau that would become an official committee of Cottage Grove similar to the EDA and Planning Commission. (Marshall, MN Model) Most accountability of funds Increased staff workload or new position created Establishing a new City board Option D: The City of Cottage Grove decides to not establish a lodging tax. No new taxes imposed Loss of potential marketing of community Overall all the cities contacted felt that the hotels were generally in favor of the tax. As the money was used to try draw people into the city thus resulting in more people utilizing their hotels, restaurants and shopping centers. In most cases seats on the board are reserved for hotel participation whether that be an owner or manager of the business. This allows for more feedback from the hotels and a general feeling of accountability to what happens to the money resulting in greater buy-in to the lodging tax. Conclusion Although the lodging tax cannot be deliberately used to bring hotel development to a community. The use of a lodging tax can be an effective economic development tool that can generate increased visits to a community that results in more overnight lodging, visits to Economic Development Authority August 30, 2017 Page 5 of 5 restaurants, and increased shopping revenues. The use of lodging tax is being used by many communities across the State of Minnesota. At this time staff recommends that we delay the implementation of a lodging tax until a third hotel is completed. Allowing for more revenue to be generated and more flexibility in options after its development. 2016 MN Local Option Lodging Tax Communities & 2016 Lodging Tax Rates by Region Rate Northeast Region -18 communities Cloquet 3 Cook Cnty Event & Visitors Bureau new Dec. 2008 1 Crane Lk & Kabetogama 3 Duluth 5.5 Edge of the Wilderness Rsrts 3 Ely 3 Iron Range Communities/Eveleth/Giants Ridge 3 Grand Marais 3 Grand Rapids 3 Gunflint Trail 3 Hinckley 3 International Falls 3 Lk Vermilion Resort Assn 3 Lutsen-Tofte-Schroeder & vicinity3 Orr Proctor1 Two Harbors3 Northwest Region -11 communities Baudette/ Lake Of The Woods 3 Bemidji 3 Crookston 3 Detroit Lakes 3 East Grand Forks 3 Minnesota Northwoods/Cass Lake vicinity 3 Moorhead 3 Park Rapids 3 Roseau 3 Thief River Falls 3 Warroad 3 Central Region -19 communities Aitkin (enacted 6-1-2015) 3 Alexandria 3 Baxter 3 Brainerd 3 Fergus Falls 3 Hill City 3 Hutchinson 3 Ideal Twnshp/Whitefish Comms: Cross Lk, Peq Lks, Pine Rvr 1 Little Falls 3 McGregor (enacted 9-1-2016) 3 Mille Lacs Area Tourism Council 3 Morris 3 Osakis 3 Ottertail 3 Perham 3 St. Cloud5 Wadena 3 Waite Park 3 Willmar 3 bh9ʹ LƓŅƚƩƒğƷźƚƓ źƭ ƦƩƚǝźķĻķ ǝƚƌǒƓƷğƩźƌǤ ĬǤ ƌƚĭğƌ ƚŅŅźĭźğƌƭ ƚƓ ğ ƨǒğƩƷĻƩƌǤ Ĭğƭźƭ Ʒƚ 9ǣƦƌƚƩĻ aźƓƓĻƭƚƷğ ƚǒƩźƭƒ͵ LƓŅƚƩƒğƷźƚƓ źƭ ĭƚƓƷźƓǒƚǒƭƌǤ ǒƦķğƷĻķͲ ğƓķ ƭǒĬƆĻĭƷ Ʒƚ ƩĻǝźƭźƚƓ͵ LƓŅƚƩƒğƷźƚƓ ƒğǤ ƓƚƷ ĬĻ ĭƚƒƦƌĻƷĻ͵ ЋЉЊЉ 9ǣƦƌƚƩĻ aźƓƓĻƭƚƷğ \[ƚĭğƌ hƦƷźƚƓ \[ƚķŭźƓŭ ğǣ ƭƦƩĻğķƭŷĻĻƷ 2016 Minnesota Local Option Lodging Tax 2016 Lodging Tax Communities by RegionRate Metro Region -26 communities Anoka 3 Apple Valley 3 Blaine 3 Bloomington7 Brooklyn Center 6 Brooklyn Park 3 Burnsville3 Coon Rapids 3 Eagan 3 Edina (enacted 7-1-2014) 3 Fridley 3 Ham Lake 3 Hastings 3 Inver Grove Hgts 2 Lakeville 3 Maple Grove 3 Minneapolis 2.625 Moundsview 3 Richfield 3 Roseville 3 St. Louis Park 3 St. Paul 6 Shakopee 3 Shoreview 3 Stillwater/Oakdale 3 Waconia 3 Southern Region -39 communities Albert Lea 3 Appleton 3 Austin 3 Benson 3 Blue Earth 3 Fairmont 3 3 Faribault 3 Granite Falls Harmony 3 Historic Bluff Country-FillmoreCounty 3 Jackson 3 Lake Benton 3 Lake City 3 Lanesboro w/ Carolton & Holt 3 Luverne 3 Madelia 1.5 Mankato 3 Marshall 3 Montevideo 3 Morton 3 New Ulm 3 North Mankato 3 Northfield 3 Olivia 2 Ortonville 3 Owatonna 3 Pipestone 3 Preston 3 Red Wing 3 Redwood Falls 3 Rochester 7 Sleepy Eye 3 St.James 1 St. Peter 3 Wabasha 3 Waseca 3 Windom 3 Winona4 Worthington 3 NOTE: Rates that vary from the standard 3% local option lodging tax rate are shown in red. 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