Sandpoint pursues another local option tax

Sandpoint is hoping to target both resident and tourist dollars by creating a resort city local option sales tax to pay for certain parks and recreation costs and for improvements to the city’s battered sidewalks and pedestrian byways. The city council voted 4-to-1 on Sept. 8 to place a 1% sales tax on the ballot for the November election to be voted on by the local electorate.

This is not the first time that Sandpoint has used the local option tax allowed by state law. Sandpoint voters approved a five-year 1% local option sales tax in 2015 to pay for a new grandstand and other improvements to the city’s War Memorial Field.

According to a compilation by the Idaho Tax Commission in 2019, the resort cities of Donnelly, Driggs, Hailey, Irwin, Kellogg, Ketchum, Lava Hot Springs, Mackay, McCall, Ponderay, Riggins, Salmon, Sandpoint, Stanley, Sun Valley and Victor all had some form of local option tax in place. Some were restricted to taxing sales of lodging, alcohol and restaurants, while others, like Sandpoint’s, were for more general sales taxes.

Sandpoint’s current proposal

The city government in Sandpoint stated that enough voters may favor a new tax, therefore it is worth taking the issue to the electorate based on multiple efforts of public outreach, including an online survey with 785 responses and a professionally designed survey sent to city residents. The results of the online survey were 48% in favor, 37% opposed and 15% uncertain. Other surveys yielded similar results, including 370 written comments left on the city’s website.

If the tax is approved, city officials estimate that it will add $12 million to the city’s revenues over a seven-year period. That money would go a long way in paying for the city’s Parks and Recreation Master Plan, which was approved in 2020.

The master plan includes upgrades to facilities that both tourists and residents use, as well as improvements to the city’s water front along Sand Creek, which cuts through the middle of Sandpoint’s commercial district. Along that waterfront, the master plan includes the creation of a state-of-the-art storm water treatment, ADA accessibility, a new boat launch, dugouts for the city’s new softball field and a dog park. If the local option sales tax fails at the ballot box, Sandpoint must use general fund moneys to pay for these improvements, even those used almost exclusively by tourists like the city’s beach.

The proposed duration of the 1% sales tax is January 2022 to December 2028. “When we looked at the surveys and comments, there was the most support for between five to 10 years for a local option sales tax,” said Sandpoint City Administrator Jennifer Stapleton, explaining why the city decided on a seven-year period for the tax. Idaho law mandates that local option taxes can not be permanent and that their duration must be clearly described to local voters.

Timing

City Council member Deb Ruehle questioned why the city staff was targeting the upcoming election: “Why are we in such a hurry? I am struggling that we have to process this so rapidly and get this on the ballot for this voting cycle.”

Stapleton explained that the tax needed to be before voters prior to January 2022 when infrastructure funds from the American Rescue Plan Act become available, which could require matching funds. The city would not have matching funds to leverage infrastructure grants if the tax did not pass. According to state law, the city will not be able to reformulate another local option sales tax proposal for a year after the election if the one on the November ballot fails.

Idaho’s local option taxes

Most local governments in Idaho make do with their property tax allocation every year because the State of Idaho does not allow local governments to use other forms of taxation except in the most limited and constrained of circumstance. One of these exceptions applies to resort communities with populations less than 10,000.

These small resort municipalities have the ability to use a local option non-property tax if such a tax “if (it is) approved by the required majority of city voters voting in an election.” The law is also specific as to those entities who can claim resort status: “A resort city is a city that derives the major portion of its economic well-being from businesses catering to recreational needs and meeting needs of people traveling to that destination city for an extended period of time.”

State law requires that the time period for a proposed local option tax must be stipulated when it goes before voters. The items that the tax will be used for must also be described.

Local governments have limited power to adjust their property taxes. Idaho’s property tax formula is a levy-based system, not a rate-based system. A rate-based system garners a set fraction of property value as the property tax, usually on a per mille (parts per thousand) basis, commonly known as a mill rate. In a levy system, the amount of tax gathered is based on the budgets’ local taxing entities.

In Idaho, most local government budgets are not allowed to increase more than 3% a year, plus a component for growth, with some exceptions allowed for things like local, school or other taxing district bonds, which must gain voter approval. When a taxing entity like Sandpoint wants to pay for amenities that cost beyond its revenue, it cannot increase its property taxes beyond the 3% increase in its budget allowed under state law, which accounts for why so many resort communities take advantage of the local tax option.