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HomeMy WebLinkAbout11A Establish Local Lodging Tax Ordinance and Cottage Grove Convention and Visitors Bureau TO: Honorable Mayor and City Council Jennifer Levitt, City Administrator FROM: Christine Costello, Economic Development Director DATE: November 26, 2019 RE: Establish Local Lodging Tax Ordinance and Cottage Grove Convention and Visitors Bureau Introduction The City of Cottage Grove as well as the City’s Economic Development Authority (EDA) have marketed the community for hotel development at ICSC RECon Convention and Minnesota Com- mercial Real Estate Association (MNCAR) Expo over the past number of years. During our mar- keting efforts, it came to the City’s attention that hotel companies and developers see a local lodging tax as an incentive to a hotel because marketing a community brings visitors and those visitors need a place to stay thus helping the hotel business. It was determined that implementing a local lodging tax would be an additional way to market Cottage Grove to the hospitality industry. On January 8, 2019 the EDA held a workshop with the Cottage Grove Area Chamber of Com- merce (Chamber) to discuss the potential administration of lodging tax funds through the creation of a convention and visitor’s bureau (Bureau). The discussion focused on the Bureau being a separate non-profit organization that would be administered by Chamber staff. At the workshop, the Chamber presented a sample annual operating budget along with discussion of the process to form the separate non-profit organization as a Bureau. The decision at the workshop was for the Chamber to begin the process of establishing a separate Bureau from the Chamber. In February 2019 the Chamber submitted a Letter of Intent (LOI) to establish a separate non-profit organization called the Cottage Grove Area Convention and Visitors Bureau. The purpose of the LOI was to facilitate the start of this project between the City and Chamber. The LOI set the basic terms for an agreement that included: • Answering inquiries about the City through social media, personal interaction, and all other forms of direct and indirect communication. • Providing planning, coordinating, and registration assistance to organizations, businesses, and groups. • Supplying support material including, but not limited to, name badges, maps, accommoda- tion lists, and information in general. • Preparing and presenting audiovisual presentations to groups to attract visitors to the City and the area. • Distributing brochures, maps, and guides of the city/area to potential visitors and to meeting and event planners. • Providing representation at trade shows, conventions, and exhibits to attract new visitors to the City. Honorable Mayor, City Council, and Jennifer Levitt Visitor’s Bureau and EDA Establishment November 25, 2019 Page 2 of 5 • Promoting the City as a destination through, statewide, regional, national, and international advertising and marketing the City and area’s hospitality industry and attractions. • Being involved as a sponsor of the City’s official festivals and events. The terms of the agreement in the LOI allowed the Bureau to administer the lodging tax revenue through the Chamber once the City of Cottage Grove enacted an ordinance for the collection of lodging tax. The Bureau estimated the initial start-up costs would be between $5,000 to $10,000. The intent was the Chamber would be reimbursed by either lodging tax funds once received by the Bureau from the City of Cottage Grove, or if the City of Cottage Grove didn’t enter into a written contract for the creation or operation of the Bureau, then the City would reimburse the Bureau for half of its start-up costs. In March 2019, the EDA, City Council, and Chamber began the process of creating bylaws and developing a Board of Directors for the Bureau. The Board of Directors consisted of the Chamber Executive Director, two lodging establishment representatives, one restaurant representative, one local business owner, and a City staff representative. The Board of Directors would assist in cre- ating a marketing plan for the Bureau. The marketing plan would be the guiding document on how the Bureau would spend the lodging tax revenue and measure the Bureau’s success. In June 2019 the Bureau was established as a non-profit organization through the Internal Revenue Service (IRS). On October 11, 2019, City staff received a draft of the proposed marketing plan and a request that it be placed on the October 16 City Council meeting for approval. The Chamber was informed that it could not be placed on the Council agenda because it had not been reviewed by staff as well as it missed the City Council packet deadline. City staff began review of the proposed mar- keting plan and found that it lacked substance and the necessary action steps to measure the Bureau’s success. On October 23, 2019, City staff received an email from the Chamber’s past president and current president that there was a new Executive Director for the Chamber. City staff met with Chamber Executive Board members on November 1 to discuss the marketing plan that had been submitted to the City. At the meeting City staff clearly stated that the marketing plan was not acceptable and would require corrections. City staff also stated they would help but would look to the Chamber and Bureau’s Board of Directors to assist in development of the marketing plan. An email and meeting was set for November 12 to review the marketing plan; the purpose of the meeting was for Chamber Executive Board members who had previously been involved in the lodging tax dis- cussion as well as the Bureau’s Board of Directors to provide feedback on the marketing plan. At the meeting City staff provided their review and comments, the Chamber provided a few com- ments, and no comments were received by Bureau’s Board of Directors. At this time the City also learned that one or two current Bureau Board Members were dropping out because of the time commitment. After discussions with the Chamber president and City staff it was determined that the Chamber was not in a position to take on or handle the requirements of the Bureau that were necessary. Therefore, it was felt that the Bureau would be better equipped to administer the Bureau as an “arm” of the City’s EDA since the purpose of the EDA is to promote the growth of Cottage Grove. Honorable Mayor, City Council, and Jennifer Levitt Visitor’s Bureau and EDA Establishment November 25, 2019 Page 3 of 5 Discussion Beginning in 1983, Minnesota State Legislation under State Statute 469.190 gives cities the authorization 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 resorts in their community. Any boarding facility that is not rented or leased over a continuous period of 30 days or more is not subject to the lodging tax. Of the gross proceeds from all lodging tax imposed under State Statute, it defines that 95 percent must go to fund a Bureau whose purpose is to market and promote the city. The funds received from the lodging tax may not be used for direct subsidies for lodging facilities, façade improve- ments, signs for specific facilities, room subsidies, or other non-marketing/promotion expenses. The Chamber began the steps to establish a Bureau but could not complete the steps of the LOI. Per the LOI the City is responsible for reimbursing the Chamber from either lodging tax funds once received by the Bureau from the City of Cottage Grove, or if the City of Cottage Grove didn’t enter into a written contract for the creation or operation of the Bureau, then the City would reim- burse the Bureau for half of its start-up costs. The City entered the LOI with the Chamber and fully intends to move forward with the steps outlined in the LOI. The Chamber’s start-up expenses to date has totaled $12,814. Per the LOI the City is responsible for reimbursing the Chamber for their expenses. Once the ordinance has been enacted for a local lodging tax, funds can begin to be collected to begin the reimbursement process to the Chamber. The funds received will need to be allocated to three areas. For the administrative costs the City incurs, reimbursement to the Chamber, and collection for the intended purpose of marketing and promoting the City through the Bureau. The City’s financial consultant, Ehlers and Associates estimated the following analysis for the proposed lodging tax as well as an outline of repayment to the Chamber. Rooms Average Daily Rate (ADR) Occupancy Estimated Gross Annual Room Revenue Maximum Lodging Tax Total Estimated Annual Lodging Tax Cottage Grove 105 $96.17 62.7% $2,310,943 3% $69,328 Source: ADR and Occupancy provided by STR, Inc., Jan-June 2018 Lodging Performance for the Southern Twin Cities Metropolitan Area $69,328 Total Estimated Annual Lodging Tax $3,466 (annually) or $289 (monthly) 5% Administrative Cost $65,862 95% to Visitors Bureau for Tourist Activities $5,489 Monthly $12,814 Amount Owed to Chamber per LOI $1,602 Amount to Pay Quarterly Over 2 Years $534 Monthly Honorable Mayor, City Council, and Jennifer Levitt Visitor’s Bureau and EDA Establishment November 25, 2019 Page 4 of 5 $5,489 Monthly Amount of CVB Activities $534 Less Monthly Repayment to Chamber $4,955 Funds Available for CVB Operations Based on the above table; when the local lodging tax ordinance and Bureau is established the Chamber will receive quarterly payments ($1,602) over two-years to be reimbursed for their start- up expenses as reference in the LOI the City signed with the Chamber. The monthly amount is shown to demonstrate the monies that will be set aside each month through the Bureau to make the quarterly payment to the Chamber. For the City and EDA to move the local lodging tax and establishment of the Bureau forward though the EDA the following steps need to be taken: • The City Council enact a Visitors Bureau Ordinance, • The City Council and EDA will enter into a contract for the EDA to operate the Visitors Bureau, and • The City terminate the letter of intent with the Chamber. The proposed ordinance will be added to the City Code under Title 1, Chapter 10, of the Finance and Taxation section. The ordinance allows Cottage Grove to impose a local lodging tax on the hotels and other lodging venues, such as the Tree House at Hope Glen Farm. The proposed ordinance would collect 3 percent on the gross receipts from lodging establishments in Cottage Grove and then 95 percent of the proceeds collected from the lodging tax would be used to fund Bureau activities for the purpose of marketing and promoting the Cottage Grove. The contract between the City and EDA outlines the purpose and establishment of the Bureau and a Board of Directors. The contract will also go before the EDA for since it will be a subsidiary of the EDA. The Board of Directors may consist of: • One individual from major hotel and/or motels within the City. • Three City Representatives (ex. Councilmember, EDA member, City staff, or another person as determined by the City Council), • One person nominated by Chamber of Commerce, and • Two persons from business community of Cottage Grove. The next step is the development of a marketing plan by the Bureau and its Board of Directors. The marketing plan will look at which amenities to promote, such as recreation, and then what those measurables would be to ensure that recreation was promoted successfully by the Bureau. The marketing plan would be brought before the EDA for consideration so that the Bureau could begin to implement the proposed marketing strategies. Recommendation That the City Council take the following actions: Honorable Mayor, City Council, and Jennifer Levitt Visitor’s Bureau and EDA Establishment November 25, 2019 Page 5 of 5 1. Terminate the Letter of Intent (LOI) dated January 6, 2019 between the Cottage Grove Area Chamber of Commerce and the City of Cottage Grove. 2. Adopt the ordinance to approve and enact Title 1, Chapter 10, Section 7, regarding the estab- lishment of a local lodging tax. 3. Adopt the resolution to establish the Cottage Grove Area Convention and Visitors Bureau. 4. Approve the agreement between the City of Cottage Grove and the Cottage Grove Area Convention and Visitors Bureau. ORDINANCE NO. XXX AN ORDINANCE FOR THE CITY OF COTTAGE GROVE, MINNESOTA, AMENDING COTTAGE GROVE CITY CODE TITLE 1, CHAPTER 10 BY ADDING THE ESTABLISHMENT OF A LOCAL LODGING TAX The City Council of the City of Cottage Grove, Washington County, Minnesota, does hereby ordain as follows: SECTION 1. AMENDMENT. The Code of the City of Cottage Grove, County of Washington, State of Minnesota, Title 1, Chapter 10, Section 7 shall be amended by adding the following section as follows: 1-10-7 – LOCAL LODGING TAX A. Local Lodging Tax Purpose and Definitions. 1. Purpose. In order to fund a local convention and visitors bureau for the purpose of marketing and promoting the City of Cottage Grove as a tourist and convention center, it is in the best interest of the City to impose a local lodging tax in accordance with Minn. Stat. § 469.190. 2. Definitions. As used in this Section 1-10-7, the following terms shall have the following meanings ascribed to them: LODGING: The furnishing for consideration of lodging at a hotel, motel, rooming house, tourist court or resort, other than the renting or leasing of it for a continuous period of thirty (30) days or more. OPERATOR: Any person, corporation, partnership, or association who provides lodging to others. RENT: The total consideration valued in money charged for lodging whether paid in money or otherwise but shall not include any charges for services rendered in connection with such lodging. B. Imposition and Collection of Tax. All operators shall impose and collect a tax of three percent (3%) on the gross receipts from the furnishing of lodging at the time lodging charges are paid. The amount of tax shall be separately stated from the lodging charges and held in trust for the City until remitted. C. Payment and Returns. 1. The operator shall remit all taxes collected hereunder to the City not later than twenty-five (25) days after the end of the month in which the taxes were collected. When payment is -2- made to the City, the operator shall also file a tax return on a form provided by the City containing the following information and such other information as the City may require: a. The total amount of gross receipts for lodging during the tax return period. b. The amount of tax imposed and collected as required for the tax return period. c. The signature of the person filing the tax return, or his/her designee. d. The period covered by the tax return. e. The amount of uncollectible rent subject to the lodging tax. 2. The operator may offset the amount of taxes imposed by this Section previously paid hereunder as a result of any transaction, the consideration for which became uncollectible during such reporting period, against the taxes due and payable with respect to any reporting period, but only in proportion to the portion of such consideration which became uncollectible. D. Examination of Return, Adjustments, Notices and Demands. After a return is filed, the City shall examine it and may make any investigation or examination of the records and accounts of the operator making the return as deemed necessary for determining its correctness. If requested, the operator shall provide its records and accounts to the City for inspection and examination within fifteen (15) days of the City’s request. If, after any investigation or examination, it is determined that the tax due is greater than that paid, such excess shall be paid to the City within ten (10) days after the City has given notice either personally or sent by certified mail to the address shown on the return. If the tax paid is greater than the tax found to be due, the excess shall be refunded within ten (10) days after determination of such refund. Whenever any tax due has a ten percent (10%) or more discrepancy, the operator shall reimburse the City for any costs incurred by the City in reviewing the operator’s return, including administrative costs and attorneys’ fees. E. Refunds. Any operator may apply to the City for a refund of taxes paid in excess of the amount legally due for that period, provided that it is filed within one year after such tax was paid, or within one year from the filing of the return, whichever period is longer. The Finance Director shall review the request and may approve or deny the request in whole or in part and shall issue written findings of such decision. The City shall notify the operator of its decision by sending notice by certified mail to the address stated upon the refund claim application. If such claim is approved in whole or in part the City shall credit the amount of the refund against any taxes due and owing hereunder by the operator. Any balance of the refund shall promptly be paid by the City to the operator. F. Failure to File a Return. Any operator who fails to file a return as required, or who files an incorrect, false, or fraudulent return, then upon written notice and demand by the City, shall file a return or corrected return together with any tax due within thirty (30) days of the City sending the written notice. Whenever any person fails to file the appropriate return under this -3- provision or fails to pay the tax due after such notice and demand, the City may determine the appropriate tax from such knowledge and information as the City is able to obtain and assess such tax accordingly. Any tax determined to be due and owing under this provision shall be paid by the operator within five (5) days after written notice and demand for such payment is sent by the City. Any assessment made by the City shall be prima facie correct and valid; and the operator shall have the burden of establishing the assessment is incorrect or invalid. Late payments shall be subject to interest at the rate of eight percent (8%) per annum. G. Failure to Remit Tax Payment. If any portion of a tax and penalties is not paid within thirty (30) days after it is required to be paid, the City may certify the tax as a lien against the real property on which the lodging establishment is located, along with interest, penalties, administrative costs and attorneys’ fees. H. Extension for Filing or Payment. Upon showing of good cause, the Finance Director may grant an operator a thirty (30) day extension within which to file a return or make payment of taxes. Interest shall accrue during such extension period at the rate of eight percent (8%) per annum. I. Penalties and Interest. 1. If any tax required is not paid within the time specified or within the approved extension period, the operator shall pay a penalty equal to ten percent (10%) of the amount unpaid, in addition to the tax due and payable. 2. Any tax not paid within twenty-five (25) days after the end of the month in which the taxes were collected by the operator, together with any penalty provided herein, shall bear interest at a rate of eight percent (8%) per annum and shall begin to accrue at the time the tax was required to be paid. Any interest and penalty shall be added to the tax and be collected as part thereof. J. Violations. Any operator who willfully fails to make a return required, or who fails to pay the tax after written demand for payment, or who fails to remit the taxes collected or any penalty or interest imposed after written demand for such payment, or who refuses to permit the City to examine the books, records and papers under the operator’s control, or who willfully makes any incomplete, false or fraudulent return shall be guilty of a misdemeanor. K. Use of Proceeds. Ninety-five percent (95%) of the proceeds obtained from the collection of taxes shall be used in accordance with Minn. Stat. § 469.190 to fund a local convention or tourism bureau for the purpose of marketing and promoting the City as a tourist or center convention. L. Appeals. 1. Petition Required. Any operator who is aggrieved by any notice, order, or determination made by the City, may file a petition for administrative review within thirty (30) days after the notice, order, or determination has been sent the operator. The petition shall contain the following: -4- a. A detailed account of the operator’s reasons for contesting the order, notice, or determination. b. The name of the operator, the operator’s address, and the location of the lodging establishment subject to the order, notice or determination. 2. Hearing. Upon receipt of the petition, the City Administrator, or the Administrator’s designee, shall set a date for a hearing and give the operator at least fourteen (14) days prior written notice of the date, time, and place of the hearing. At the hearing, the operator has the burden to prove that the notice, order, or determination is in error. The operator may be represented by counsel at operator’s own expense. The hearing shall be conducted by the City Administrator or Administrator’s designee, provided that the person conducting the hearing shall not have participated in the decision in the notice, order or determination for which review is sought. The notice, order or determination may be affirmed, reversed, or modified. Any decision by the City Administrator shall be supported by written findings of fact based upon the applicable provisions of this Section and the evidence presented. 3. Appeal to the City Council. The operator may appeal the decision of the City Administrator or the Administrator’s designee to the City Council by filing a written notice of appeal with the City Clerk within ten (10) days after the decision has been sent to the operator. The matter will be set before the City Council as soon as is practical, and the operator shall be given fourteen (14) days notice of the Council hearing. The Council’s standard of review of the Administrator’s decision shall be based on the record and the operator shall have the burden to prove the City’s notice, order, or determination is in error. The Council may modify, reverse, or affirm the decision of the City Administrator. M. Alternate Method of Collection. The City may agree with the State of Minnesota Commission of Revenue that the tax imposed by this Section shall be collected by the Commissioner together with the sales tax imposed by Minn. Stat., Chap. 297A and subject to the same interest, penalties and other rules and that the proceeds, less the cost of collection, shall be remitted to the City. If the City makes such an agreement pursuant to Minn. Stat. § 469.190, subd. 7 with the Commissioner of Revenue, then the interest, penalties and other rules applicable to the collection of the sales tax under Minn. Stat., Chap. 297A shall also be applicable to the lodging tax imposed by this Section, in lieu of the interest, penalties and collection rules set forth in this Section. SECTION 2. SUMMARY PUBLICATION. Pursuant to Minn. Stat. § 412.191, in the case of a lengthy ordinance, a summary may be published. While a copy of the entire ordinance is available without cost at the office of the City Clerk, the following summary is approved by the City Council and shall be published in lieu of publishing the entire ordinance. The text amendment adopted by the Cottage Grove City Council December 4, 2019, 2019 modifies the City Ordinance to adopt a local lodging tax of 3% on all lodging charges in the City. -5- SECTION 3. EFFECTIVE DATE. This ordinance shall be in full force effect after passage and publication according to law. Passed this day of , 2019. Myron Bailey, Mayor Attest: Joseph Fischbach, City Clerk Published in the South Washington County Bulletin on [Date].