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Wednesday, 05 July 2006 00:00

Subject to tax, where applicable

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Every few weeks, Scotty Ellis cruises the newspaper classifieds, scans Web sites and scrounges brochures from kiosks at visitor centers looking for vacation homes to rent in Haywood County.

Ellis isn’t in the market for a vacation, however. As the tourism authority director, Ellis is on the lookout for people renting vacation homes but failing to collect a 3 percent tax on overnight lodging aimed at tourists.

All too often, Ellis’ search finds someone who isn’t collecting the room tax, most of whom claim they were unaware of it. It highlights what many in the tourism business suspect is a huge problem. There likely are dozens of second-home owners who rent their homes to tourists under the radar of room tax collectors.

“There’s no way of knowing who is out there renting their house,” said Vickie Cagle, a county tax collector in charge of the room tax accounts. “We are not out there surveying to see who is paying and who is not.”

But the problem doesn’t stop there. There’s also a chance that lodging owners and vacation rentals that do charge the tax don’t turn it all in, but instead pocket a portion of it. It’s up to the lodging owner to report how much tax they collected each month. Every year, lodging owners get a book of 12 payment stubs. Each month, they rip one off and send it in with a check for the amount of tax they collected.

“We don’t know if that is correct or not correct,” Cagle said.

There is no systematic strategy in place in Haywood County for ferreting out these room tax dodgers, whether it’s vacation home owners unaware of the tax or motel owners who pocket a portion of what they collect.

“There are all sorts of problems,” Ellis said.

Here’s another one. Many second-home owners contract with a real estate firm to manage their home as a vacation rental. One firm might have 100 vacation homes under its domain, but only reports one lump sum of room tax to Cagle each month. The firm doesn’t indicate what vacation rentals it manages, let alone which ones were rented or for how many nights.

This makes it tricky to find vacation rentals not paying the tax. If Ellis finds a Web listing for a vacation house called Mountain Paradise, for example, she checks Cagle’s list to see if it’s on there. If it’s not, it could simply mean that it’s managed by a vacation rental firm and therefore not listed individually.

The Haywood County Tourism Development Authority Board discussed the varied problems at its board meeting last month and decided they needed to be addressed.

There has been a surge in the popularity of vacation homes and cabins in recent years, said James Carver, a Maggie Valley restaurant owner and tourism board member. Hotels and motels, which were far more reliable in collecting the room tax, have lost business to vacation rentals, many of which don’t collect the room tax. As a result, room tax collections haven’t grown, making tourism in Haywood County appear stagnant on paper, when it fact that’s not the case, Carver said.

“This is where the tax has gone,” Carver said. Many second-home owners register with a rental or real estate company that manage the vacation rentals of their home for them. Carver suggested writing a letter to every Realtor in the county informing them that room tax applies to vacation rentals.

Sonja Michaels, a tourism board member and Maggie hotel owner, said that won’t really solve anything. The problem is reaching individual second-home owners who might be renting their homes.

“If you look on the internet there are hundreds of individuals renting homes not connected to any real estate agency,” Michaels said.

Michaels suggested some kind of audit.

Haywood is not the first to tackle this problem. In Buncombe County, the county tax department picks lodging owners at random each year to audit. This only captures lodging owners who might be pocketing a portion of the tax they collect.

The auditor checks the lodging owners’ books to see how much they actually brought in compared to what they reported. Of course, lodging owners could keep two sets of books: one that shows their actual room bookings and revenue and one set of books for what they report for tax purposes.

Ellis thinks it would help, nonetheless.

“There is least that thought in people’s minds that ‘Hey, if we don’t do it right, we could be audited,’” Ellis said.

Cagle said it also would help if lodging owners had to show how they arrived at the lump sum they report each month. For example, a photocopy of their registration book, or a list of how many rooms they rented and at what price.

The audits of known accommodations don’t help ferret out those vacation homes not collecting the tax, however, which Ellis and tourism board members agree is the bigger problem.

Lynn Collins, director of the Maggie Valley Visitors Bureau and Chamber of Commerce, had the same problem in the county where she worked previously — a county in Florida that neighbors Disney World. There, the county did a systematic audit to uncover every home that was being used as a vacation rental. A full-time auditor was added to the county’s staff to ferret out room tax dodgers.

There were 150,000 homes in the county — compared with only 35,000 in Haywood. The auditor drove the county street by street to look for signs of rental houses and was systematic about checking newspaper classifieds and vacation rental Web sites. They checked county tax records for homeowners with out-of-town addresses, who would be more likely to use their home as a vacation rental. In addition, a notice about occupancy tax was sent out in everyone’s annual tax bill.

“There are a lot of different ways to let people know and to find them,” Collins said.

Collins said the auditor’s position more than paid for itself through an increase in room tax collections uncovered by the auditor. Collins thinks the same would hold true here.

Ellis is going to bring the tourism board’s concerns to the attention of the Haywood County commissioners this month and ask them for any recommendations.

“Enforcement of that (room tax) would be a county issue. They would need an enforcement department,” said Dale Walksler, tourism board member and owner of Wheels Through Time Museum.

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