Red Lodge, Montana

Red Lodge Resort Tax Review, Part 1

Resort TaxAs all Red Lodge residents (and most visitors) know, we have a 3% “resort tax” in this city. Basically, it’s a sales tax in a state without sales taxes. A handful of other communities around the state have resort taxes, including West Yellowstone and Big Sky.

Please see the updates in Part 2 of this article, posted Monday, November 25.

By law, the City of Red Lodge must appoint a sales tax review committee every five years. I served on that committee five years ago, but chose not to do it again this time because all of our recommendations and hard work were thrown out the last time. I applaud the people who served on the new committee, especially since the document that was circulated this week bears little resemblance to what they recommended to the City Council.

In response, I wrote the following letter to Mayor-elect Ed Williams and the rest of the City Council:

First and foremost, as a merchant collecting resort tax, I feel that the ambiguity needs to be removed from this ordinance. As written, it has a huge flaw: two separate lists. No law or ordinance should ever be written this way.

If the ordinance says “everything on this list is taxed and everything else isn’t,” then everything is clear to merchants. Are calendars taxed? It they’re on the list, yes. If they’re not, no. Currently, we have a “taxed” list and a “not taxed” list. Calendars aren’t on either list. What do I do? According to section 2-4-11, I ask the Mayor. This isn’t a good solution. We’ve had four mayors since I bought my store, and they’ve interpreted things differently.

A clearly-written, easy-to-understand ordinance will make it easier for the merchants to collect the taxes and lessen the workload on the Mayor and Council.

Here are the rest of my comments:

1) The list of taxable items in 2-4-4 includes “Mail order and catalog sales.” This is not how United States law works. A sale is defined to occur where at the BUYER’s location, not the seller’s. If someone from Wisconsin places a mail order (or phone order, or Internet order) from my store, I am responsible for dealing with Wisconsin taxes, and Red Lodge does not have the legal right to tax that sale.

2) I do not understand why electronic entertainment devices (e.g. MP3 players & computer games) are specifically exempt from the tax, while books are considered luxuries. Your iPod isn’t taxed, but a book about how to use it is? Why is an electronic book (e.g., a Kindle, Nook, or iPad sold at Radio Shack) exempt, but a real book is not?

3) The list in section 2-4-4 begins with the words, “The term luxuries shall be defined to include, but shall not be limited to.” Absolutely NO. This is an ordinance which is fully and entirely based upon the definition of the word “luxuries.” That word must be defined. When there is a question, it should be resolved and updated.

4) This is a big one: Section 2-4-9-A says “Property tax reduction for taxpayers residing in the city…” (italics mine). I own property within the city limits, but my primary residence is outside the city limits. Why should I not be allowed to participate in the property tax reduction?

5) It is difficult to get people to shop in Red Lodge instead of going to Billings to avoid the resort tax. Luckily, the bare necessities of life have been exempt from the tax, like food and clothing. Adding clothing to the “luxuries” list will drive people out of Red Lodge to shop, and could well be a death knell for some of the clothing-based businesses that have been in town for decades.

6) Why are newspapers exempt from the tax, but magazines are taxed? Is Time less of a news source than the Billings Gazette?

7) In my store, why are prepackaged shortbreads not taxable (“food purchased unprepared or unserved”), yet the prepackaged chocolate bars right next to them are taxable (“…candy, including individual, bulk, and packaged quantities”)?

8) If “food purchased unprepared or unserved” is exempt (1st paragraph of 2-4-4), why does 2-4-5 specifically call out “noncarbonated (sic) drinks, fitness drinks for later consumption”? If someone purchases a “to go” cup of non-carbonated drink (e.g. tea from my tea bar), is it taxed or not?

9) Are mints candy (taxed) or personal hygiene (untaxed) like mouthwash?

10) Why is EXCEPT FIREARMS in all caps, underlined, and boldface?

11) Tobacco and tobacco products are taxed. Charcoal is exempt. So do I tax charcoals for hookahs?

12) Books are taxed. Stationery and office supplies are exempt. Do I tax blank journals and notebooks?

13) “Gifts” are specifically called out as a luxury. What’s a gift? How is that defined?

14) “Electronic entertainment devices” are specifically called out as exempt. How about non-electronic entertainment devices, like puzzles and board games? Or, for that matter, game books?

15) Under “Shipping agents” in 2-4-5, why is UPS specifically exempted, but not FedEx or USPS?

16) When I added the tea bar to my bookstore, did that make it a food service establishment? According to page 4 (2-4-4), that means “all goods and services sold” in the store are now taxable! Does that even apply if the item is on the exemptions list in 2-4-5?

I hope that everyone who reads this will stop by the City offices and pick up a copy of the new proposed ordinance, read it, and then attend the upcoming meeting on Tuesday, November 12.

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