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Local hospitality tax bill heard in House committee

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news Bemidji, 56619
Bemidji Minnesota P.O. Box 455 56619

BEMIDJI – A bill to allow the city of Bemidji to impose a tax on purchases at restaurants and hotels to help fund the Sanford Center cleared a legislative hurdle Wednesday afternoon.

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The hospitality tax bill was heard in the property and local tax division of the House taxes committee, where it was laid over for possible inclusion in an omnibus tax bill, said its author Rep. John Persell, DFL-Bemidji. Omnibus bills are a package of separate provisions introduced at the Legislature.

“So that’s progress,” Persell said after the hearing.

City manager John Chattin, who was in St. Paul to help present the bill Wednesday, said he felt the hearing went well. Audio or video footage of the committee meeting was not available Wednesday night.

Persell said there was “some pushback” from the lodging industry during the hearing.

The bill would allow the city to impose up to a 1 percent tax on purchases at restaurants and hotels in the city. The money would be used for Sanford Center operations, maintenance and capital replacement costs.

The city currently spends $400,000 of its $9.9 million general fund budget for Sanford Center operations annually. A 1 percent hospitality tax on restaurants and lodging would generate about $500,000 annually, which would cover the current subsidy and allow funding of future capital needs at the center, according to city estimates.

According to a one-page breakdown provided at a recent council meeting, a hospitality tax would also allow city property taxes to be reduced by $400,000. It also stated the hospitality tax would be paid by patrons, and not the business owners.

A local referendum would not be required as the bill is currently written, Chattin said.

“If it was passed in its current form it would be a council decision as to what rate to implement (the tax),” Chattin said Tuesday, adding the council could opt for a rate lower than 1 percent. Chattin said the proposal is similar to one already in place in Mankato.

But local business leaders have not been supportive of the tax.

The Bemidji Area Chamber of Commerce announced its opposition in December, a position that hasn’t changed since.

Lori Paris, president of the Bemidji Area Chamber of Commerce said Tuesday that more options for funding the Sanford Center should be explored before considering a hospitality tax.

She added it’s hard to guarantee property taxes will be reduced as a result of the new tax.

“In the meetings that we’ve had, it’s been offered that if the city could lower the business owners’ property tax, would they favor a hospitality tax?” Paris said. “I think ultimately the bottom line would probably be yes, but they can’t guarantee that.”

Paris added recent legislative proposals to increase the minimum wage in Minnesota could impact the restaurant industry even without the hospitality tax in place.

The chamber sent out an email Tuesday asking members to contact legislators about the proposal. The email also included a sample letter addressed to Persell opposing the tax.

“There are many establishments that cannot afford to pass on the tax to their patrons and will instead cut into their bottom line,” the letter reads. “I understand the City of Bemidji needs to be prudent in sustaining the Sanford Center, however the City in my opinion, has not fully vetted other means to better fund the facility.”

Denelle Hilliard, executive director of Visit Bemidji, the area’s tourism bureau, said they are also opposed to the tax.

There is already a 3 percent lodging tax in the city, most of which goes to tourism marketing and promotion at Visit Bemidji. According to the Minnesota Department of Revenue, about 100 local jurisdictions had a lodging tax in place as of August 2012.

The half percent local sales and use tax was approved by voters and later implemented in 2006 for $9.8 million in park and trails improvements. Once that money was raised, the tax was dedicated to Sanford Center construction bonds.

The hospitality tax bill’s Senate companion, authored by Sen. Tom Saxhaug, DFL-Grand Rapids, has yet to have a hearing.

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