Red Lodge, Montana

New Red Lodge Resort Tax Rules Explained

Resort TaxAt last night’s City Council meeting, the new resort tax ordinance #901 passed with little fanfare. The gist of the regulations remain the same: The tax rate is 3%, it applies to transactions within the City limits, and it is intended to apply to luxury items, not necessities of life.

If you wish to read the full text of Resort Tax Ordinance 901, we have it right here as a PDF file. It will take effect on February 1, 2014.

Much of the work done on the resort tax was for clarification. The big change was the elimination of the double list. Our current ordinance has a list of things that are taxed and a list of things that aren’t. This leads to confusion when there are items that aren’t on either list (e.g., umbrellas or calendars). The new ordinance provides a single list. Items on the list are taxed, and everything else isn’t.

A key point mentioned above is that the resort tax applies to transactions within the City. If you buy your lift tickets at Red Lodge Mountain, you are outside the City limits, so there is no resort tax. If you buy those lift tickets in town, there is a resort tax. Dinner at Bridge Creek is taxed; dinner at Piney Dell is not. Mail order and Internet sales are not subject to the tax (the “location” of such a transaction is determined by where the buyer is, not the seller).

One point of contention and confusion was clothing. At one point, the proposed new Ordinance 901 called for a resort tax on all clothing, which upset quite a few people — consumers and store owners alike. The ordinance as passed is quite similar to the one we have now. The resort tax is applied to:

“New clothing items that have been either screen-printed, embroidered, or otherwise imprinted with designs depicting or containing words such as Montana, Red Lodge, Carbon County, Yellowstone Park, Beartooth Mountains, Beartooth Highway or any combination thereof.”

The intent is to tax souvenir clothing that tourists would buy, but not everyday clothing that locals would buy.

Ladies, although your clothing will not be taxed, all of your cosmetics, perfumes, tanning lotions, makeup bags, and lint brushes are subject to the resort tax. Men, this applies to your cologne, too.

Sporting goods are taxed (they are considered recreational — hence luxuries), but the City’s ordinance has to exempt firearms to be in compliance with Montana State law. Buy a shotgun in town and it will not be taxed; buy a compound bow and it will. Note that the sporting goods tax does not apply to garage sales or ski/gear swaps, but it does apply to consignment items and used sporting goods.

Food is a bit more complex, but it’s still not too hard to understand. Any food sold at a restaurant (sit-down or fast food) is taxed. Deli and bakery items and other food intended for immediate consumption are taxed, except loaves of bread. Candy, gum, and single-serving drinks are taxed. Tips are not subject to resort tax.

All alcoholic beverages and all tobacco products are taxed, with the exception of FDA-approved nicotine replacement therapy.

One big change is that books are no longer considered luxuries and aren’t subject to the resort tax. Magazines are still taxed, although newspapers are not. Greeting cards of all kinds are taxed.

Virtually all “attractions” are subject to resort tax, including movies, bowling, video arcades, green fees, lift tickets, club memberships, and rentals of equipment and vehicles. There are some exemptions for nonprofits (see below).

Things are quite simple for “temporary vendors” (any business that does not operate more than 90 consecutive days in one calendar year): everything they sell is taxed. This means that a booth set up at the Beartooth Rally, Home of Champions Rodeo, Festival of Nations, or other local event has to charge resort tax on items that would not regularly be taxed if sold by a Red Lodge business (clothing or books, for example).

Nonprofits

Nonprofit organizations are not automatically exempt from paying the resort tax, nor are government organizations (if the City of Red Lodge buys something in town, they have to pay the resort tax just like everyone else).

As for collecting resort tax, there are some nonprofit exemptions:

A fraternal organization like the Elks does not need to collect resort tax from its members when serving food or drinks. When they rent out their facility to the general public or open the bar to non-members, they do need to collect resort tax. This does lead to some strange situations. The Elks has constructed a new veterans center, which is open to all veterans of the U.S. military. If a veteran is a member of the Elks, he or she won’t have to pay resort tax at the veterans center bar, but veterans who are not Elks will have to pay it.

A nonprofit putting on an event (e.g., the Festival of Nations or a Red Lodge Fringe concert) does have to charge resort tax on the tickets or cover charge unless the event is a fundraiser, in which case it is exempt.

What happens to the money?

Excellent question. That’s one part of the law that hasn’t changed.

  • 5% of the money collected is kept by the merchants that collect it. This is intended to offset their administrative and paperwork costs.
  • 1% is used by the City to cover administrative costs.
  • 15% is used for property tax relief for people who own property in Red Lodge
  • The remaining 79%, according to the ordinance, “must be utilized for capital improvements to streets, alleys, roads, the municipal water system, the municipal sewer system, parks and recreational facilities, or emergency services.”

Enforcement

The ordinance provides for periodic random audits of businesses that collect resort tax. These are done “under the direction of the Mayor or his/her designated representatives.” Note the word “random.” There is no provision for punitive audits, audits of businesses the Mayor doesn’t like, or audits of businesses that have failed to collect or report in the past. Failure to turn in the tax forms within a 30-day grace period, however, generates an automatic audit.

Each merchant in town has to provide a $500 bond before being licensed to do business. This includes temporary booths and people selling goods at fairs. If a merchant fails to collect the tax, or collects it and fails to turn the money over to the City, the bond is forfeited and the City may take other actions including:

  • Criminal penalties, including a fine of up to $1,000 and up to six months in jail.
  • Civil penalties, including the taxes due, audit fees, attorney fees, witness fees, and other court costs incurred by the City.
  • Revoking the offender’s business license
  • 10% interest on all overdue taxes

Background

For more about how these changes came to be, please see Red Lodge Resort Tax Part 1 and Part 2.

 

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