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Wednesday, 05 July 2006 00:00

Work of hired consultant causes confusion among lodging community

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By Sarah Kucharski • Staff Writer

Late last month Macon County consultant Gary Nicholson sent out 351 letters to local accommodations owners to begin building a database of who is supposed to pay the county’s 3 percent tax on overnight lodging aimed at tourists.

The letters outline the occupancy tax law and include a copy of the local ratified bill and section 27 of the North Carolina Sales and Use Tax Technical Bulletins — heavy reading that could be simplified to say, “pay up.”

“This applies to anyone who rents to transients, or short-term rentals being anything less than 90 days,” Nicholson said. “If you rent it out daily or weekly or monthly, then yes.”

That means hotels, vacation cabins, even that second home or garage apartment that is rented on a short-term basis is subject to both the state’s 7 percent sales tax and county’s 3 percent occupancy tax. Currently there are slightly more than 130 businesses registered to collect and pay the occupancy tax. Nicholson — amongst others — believes there are more out there that should be paying.

“I’ve had a lot of people that said ‘we got your letter, we had no idea,’” said Nicholson, whose company, Legacy Consulting Associates LLC, is being paid $60,000 over two years to conduct the study.

Two years ago Sue Buchanan, co-owner of Buckwood Lodge in Highlands, was one such person. Buchanan said someone with the county contacted her saying that the lodge needed to be collecting and paying occupancy tax.

“We did not know at all,” Buchanan said.

Occupancy tax is added on to a rental bill like any other tax, but then turned over to the county’s finance department to be reallocated to local chambers of commerce. Currently the Franklin Chamber of Commerce and Highlands Chamber of Commerce share the revenue collected. The funds are divided based on how much tax was collected within the individual towns and surrounding communities. Last year Franklin got approximately $122,000, Highlands about $200,000.

However, there could be several accommodations owners like Buchanan — who has had the Buckwood Lodge for 20 years — who aren’t aware of the tax, Nicholson said.

“I know in Macon County there never was a mechanism to make people aware of it,” he said.

But that’s no excuse, said Nicholson, who spent 20 years as an investigator with the Department of Revenue.

“Try that with the IRS sometime,” Nicholson jokingly recommended.

Whether accommodations owners have been collecting and reporting the tax has been based on the honor system. If that system fails, a hotel owner could potentially lie about how much tax was collected and pocket the change. A small operation off the accommodations radar could not report the tax at all, or not charge it and offer rooms slightly cheaper than others.

Highlands Chamber of Commerce president Bill Bassham introduced Nicholson to at least one resource for potentially tracking down accommodations owners who fail to pay — the Vacation Rentals By Owner Web site. At www.vrbo.com vacationers can search worldwide for private homes and apartments to rent person-to-person. The Highlands’ listings show about 50 accommodations all with prices ranging from $150 a night to $9,500 a month.

A quick glance shows no mention of sales or accommodations taxes, rather there are add on “administrative fee” or housekeeping charges.

“I don’t think you’re going to fund a bunch of inns,” Bassham said, of accommodations that are failing to pay. “Where you’re going to find your money is individuals renting their homes.”

In a memo to County Manager Sam Greenwood, Nicholson wrote that while many second-home owners are renting out their property “virtually zero.”

However, those in the industry seemed to agree with Bassham — commercial enterprises know what they’re doing and know they should be paying.

Karin Gorboff, co-owner of the Blaine House in Franklin, said that ever since she and her second cousin opened the bed and breakfast in 1995 they’ve been charging the tax. And they know the laws. The inn had a cottage rented out mostly to honeymooners, but has since converted it to a rental residence.

“Now that cottage is a long-term rental so it doesn’t apply,” Gorboff said of the tax.

Gorboff said she’s never really had a problem with the tax — no one has ever decided not to stay at the B&B because of it — but would like to see it applied to tourism enterprises countywide.

“I think it should be across the board,” she said.

That way accommodations owners wouldn’t be penalized, and other tourism-related activities from gem mining to whitewater rafting could also contribute. Occupancy tax dollars are to be used to promote an area in a way that will put “heads in beds” as the saying goes, so why not tax the activities tourists come here to do to further that promotion?

Nicholson’s job is to set up a system so that a record may be kept of who should be paying the tax and who actually is. However, setting up the system does not — at least at this time — include an audit to determine how much money has been lost by accommodation owners not paying. County commissioners will decide at a later date whether to collect back taxes, Nicholson said.

Accommodations owners interviewed did not support collection of back taxes, as it would be difficult to assess the amount that should have been paid.

“I think it should just be from here on in,” Gorboff said.

Buchanan agreed.

“I really don’t think they should go back and charge people,” she said.

However, owners were open to a flat fee system for taxes not paid to help even out the contributions made by those who have.

“It’s not fair to the people who have paid,” said Rick Patel, general manager of Comfort Inn in Franklin.

But Nicholson’s 351 letters sent out to collect data for setting up the room tax system might not be achieving their desired purpose. Gorboff didn’t recall having seen such a letter, but said her cousin might have. Buchanan hadn’t seen one either, but said her husband might have. Patel threw his away, in part because the hotel already pays its occupancy tax and in part because he wasn’t sure what it was.

“It was like a weird application,” he said.

And Janie Dunham, rental manager at Desoto Trail Realty, appreciated the inquiry as to whether or not she’d received any such letters, as it was only then that she found out just what the two lying on her desk were about.

Consequently the question has arisen — will the pay off be worth the effort?

“No, I don’t think so,” Bassham said.

Already the chambers are getting less money, as the county increased the fee — collected from room tax revenue — for administering the occupancy tax revenue. The increase came in a line item in the county’s budget, upped by County Manager Greenwood to pay for Nicholson’s salary.

Nicholson, a retired county employee, originally signed a $60,000 one-year contract. However, county commissioners took issue with the fact that they had not been consulted about Nicholson’s hiring or how much he would be paid. Commissioners renegotiated Nicholson’s contract so that the payments would be split over two budget years.

The fallout of the incident was that county commissioners decided to strip Greenwood of some of his power, and voted to instead filter all contracts through county attorney Rick Moorefield’s office. Greenwood is expected to retire with 30 years of county service after this fall.

If Nicholson’s work turns up additional occupancy tax revenue that could be added to the chamber of commerce’s budgets, both Bassham and Franklin Chamber executive director Linda Harbuck had plans for the funds.

Bassham would direct it specifically toward marketing, with more potentially going to cover printing costs, which went up somewhat unexpectedly when the chamber relocated its visitor center. The better location means more traffic and materials are running out.

Harbuck said it would depend year-to-year what needed the most funding, but generally speaking monies would be spread around.

“I think we would increase across the board,” she said.

Currently advertising and grant funding represent the largest percentages of the Franklin chamber’s budget, Harbuck said.

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