Tourism Zone Grapples With Room Tax Collection Issues
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Nearly three years after the Door County Tourism Zone was formed to collect a 5.5 percent room tax, several lodging entities are still flying under the radar and avoiding the tax.
Bob Kufrin, Chairman of the Door County Tourism Zone Commission, estimates that 30 properties are advertising as lodging establishments but are not permitted to do so and not paying the room tax.
Now the commission, which oversees tax collection and disbursement, is debating how best to encourage universal compliance.
“The organization has reached a point where we need to address and formalize our policy,” Kufrin said. “We need to make it clear, so we and the permit-holders know exactly what happens when they don’t pay.”
Kufrin said 870 lodging permits have been issued, representing over 3,000 units. Of those, between 60 – 100 are paying the tax late each month. To date, the commission has taken two properties to court for failure to pay.
“We’re dealing with three compliance components,” Kufrin explained. “There are those lodging owners who pay on time, which is the bulk of them and we appreciate that. Then there are those who are permitted but not paying on time or not submitting any paperwork. About 20 properties fall into that category. Finally, there are at least 30 properties that are not permitted but are advertising rooms for rent.”
Those unpermitted properties may be collecting the tax and pocketing that 5.5 percent, Kufrin said.
Going after non-compliant businesses isn’t easy. The room tax is a self-reporting tax, which makes it difficult to determine how much a business owes the commission.
“We may know how many rooms a place has and some occasional information about rentals, but not enough to know specifics,” Kufrin said.
To estimate the tax owed, the commission could take the number of units in the establishment, and use the average nightly rate of the establishment and the average occupancy of similar units in the community to come up with an estimate. Then, in cases of severe delinquency, they would follow the practice that the Department of Revenue uses for delinquent sales tax, which is to add a 25 percent premium for late payment plus interest and fees.
Kufrin expects to get an estimate of the total amount that the approximately 50 non-compliant properties owe the commission at its Jan. 21 meeting. “It could be a pretty substantial number,” he said.
One of the issues the commission is debating is whether the fees and penalties are severe enough to dissuade businesses from paying late. A $25 late fee may be palatable for a business if it can keep a few hundred or a few thousand dollars available in its account for an extra month. The commission could increase penalties, but commission member Andy Coulson said that may not be the best route.
“If someone is using that room tax money to help finance their business for a month or two, that’s not right,” said Coulson, who owns the White Gull Inn. “But I know that many of the late payers may just be behind. Do we want them to be caught up with some nasty fine? We’re fortunate at the White Gull to be large enough to have someone to take care of it for us, but I remember when we were small and I had to do everything. Paperwork piles up.”
Most of the non-compliant facilities are people who rent out one or two cottages or their home. Kufrin said the commission continues efforts to educate innkeepers through notices in tax bills, running ads, and sending letters to those thought to be renting.
Pursuing late payments through the court system is costly. Through October of 2009 the commission had spent $8,262 on collection efforts. Two options up for consideration are using a collection agency or a limited form of room tax amnesty.
Both would save the commission significant collection expense, but under amnesty, if a property owner became permitted and current, late fees and penalties would be waved.
“That would be an effort to just get the non-compliant operators on board,” Kufrin said. “We would lose the penalties, but we would get them in the fold and avoid an adversarial process.”
Coulson said that could be problematic.
“The cost of compliance enforcement sometimes exceeds the amount of the penalty, so I can see the viewpoint of those who would say we’re better off to just reach a settlement,” Coulson said. “But then you worry that you could be setting a precedent.”
Since May of 2007, the tax has brought in $7,988,026, of which 66 percent goes to the Door County Visitor Bureau to promote overnight stays. The commission gets 4 percent of collections for the cost of collecting and administering the tax, and 30 percent goes to the individual communities in which it is collected for spending however the municipality chooses.
The nearly $2,396,000 that has gone back to municipalities has been used for a wide variety of projects, some to improve infrastructure and save local taxpayers money. The Village of Sister Bay has used its share to pay down the debt service on the Waterfront Park property purchased in 2007. Liberty Grove has used it to supplement the general fund, but has earmarked next year’s funds to improve services to attract visitors, like parks, beaches and the marina.
The Village of Egg Harbor has used room tax dollars to support concerts at the Peg Egan Performing Arts Center and the Egg Harbor Business Association. The Town of Gibraltar and Ephraim have also dispersed funds to their individual business associations.
Contacting the Tourism Zone Commission
Door County Tourism Zone Commission
PO Box 55
Sister Bay, WI 54234
920.854.6200