February 25, 1996 in Nation/World

Tax Proposal Soaks Poor Lawmakers Consider Letting Kootenai County Residents Boost Sales Tax, Cut Property Taxes

By The Spokesman-Review
 

A proposal to get tourists to pay more taxes also would shift thousands of dollars to Kootenai County’s wealthiest landowners.

Meanwhile, the county’s poorest residents - renters and people with low-cost property like mobile homes - would pay more sales tax along with tourists, but get little or no refund.

Coeur d’Alene, Post Falls and county leaders have pitched the local option sales tax as a way for tourists to help pay for roads, police and fire stations. By law, at least half the money raised would be given back to residents in the form of lower property taxes.

Although the plan would make millions available for local government, no one is sure how much would come from the intended target - tourists.

“If you eat some place, you have to pay more because we have tourists here?” asked retiree Margaret Peterson. “I don’t think that’s fair at all.”

This week, the state House of Representatives is expected to vote on a bill that would let county voters decide whether to install an optional sales tax.

County Administrator Tom Taggart estimated a 1 percent tax - the amount most often talked about - could generate $10 to $12 million a year.

“We know they’re shopping here, eating here and using our roads,” said Coeur d’Alene Mayor Al Hassell. An optional tax “redistributes some of those costs to tourists.”

But even the state’s top tourism official last week characterized the proposal as shifting money from “the left pocket to the right” under the guise of collecting cash from tourists.

“They (county residents) will end up taxing themselves,” said Carl Wilgus, administrator for the state Division of Tourism.

Experts have guessed visitors would account for between 9 and 35 percent of the new sales tax receipts.

Local people would contribute the rest - with no guarantee that their property tax break would equal what they paid in sales tax.

Under the plan, any tax relief would profit the county’s richest residents. Middle class homeowners may or may not break even. And low-income families would likely lose money.

That possibility isn’t lost on residents, some of whom view the idea with skepticism.

“It’ll get the tourists, but it’ll get us too,” said mother Tammy Ricks. “I don’t like it.”

Jessica Osborn-Turner, an Arizona transplant, was outraged when she first learned food was taxed in Idaho. Increasing that tax would be “unconscionable,” she said.

Sales tax, said Washington State University economist Gary Smith, is “about the most regressive tax there is.”

“Poor folks pay a larger portion of their income in tax than rich folks,” he said.

This plan could save North Idaho resort developer Duane Hagadone and Hagadone Hospitality - which together own more than $65 million in land and buildings - $90,000 a year. Louisiana-Pacific and the owners of Silver Lake Mall also could save tens of thousands.

That isn’t necessarily unfair, said Russ Westerberg, lobbyist for Hagadone Hospitality Corp.

“The person who owns the most property pays the most in property taxes,” he said. “Likewise, the person who pays the most gets the most relief.”

However, even Westerberg acknowledged that renters would pay $100 or more a year in increased taxes on food, clothing and other items and get no tax break at all.

That angered Peterson, a 50-year Coeur d’Alene resident who now rents an apartment at Forest Place retirement community on Seltice Way.

Peterson said she always paid property taxes and supported schools. Now a renter, she shouldn’t have to subsidize business owners and others who benefit from tourists.

“What’s wrong with property taxes?” she asked. “I think they’re barking up the wrong tree.”

Kootenai County was home to nearly 8,000 renters in 1990, said Andy Golmicz, with Resort Property Management, and “and it’s substantially more than that now.”

Despite popular belief, said Smith and Glenn Crellin, with WSU’s Center for Real Estate Research, tax cuts rarely translate to rent reductions or even slow rent increases.

“Rent is driven by demand,” Smith said. “Even if you tweak the landlord’s costs, there wouldn’t be any reason to expect that would shift down to renters.”

City and county leaders long have sought a way to make the area’s millions of visitors shoulder more of the cost of local government. Currently, that burden is covered by property taxpayers and an existing 5 percent sales tax.

The problem: Few taxes hit visitors exclusively.

Resort areas like Sun Valley and Whitefish, Mont., use hotel taxes to get money from visitors, said Montana State University economist Doug Young.

“I think people are pretty happy with it,” he said.

That kind of tax would miss most of Kootenai County’s visitors - regional day-trippers who come to play on Lake Coeur d’Alene, sightseeing or shopping before heading home for the night. Additionally, an existing statewide bed tax means hotel guests already pay an extra 2 percent to cover tourism costs.

That’s why local leaders turned to the “resort tax” bill.

City and county officials defend the bill, pointing out they are asking for little: The right to let area taxpayers vote on a sales tax proposal.

“If the people don’t like it, they don’t have to do it,” Hassell said. “If they do want to do it, they should be allowed to.”

Taggart pointed out officials also would likely use more than half the money for property tax relief.

“If we get it up in the 75 percent range, that would help,” he said.

Currently, county residents pay about $64 million in property taxes each year. If the county collected $12 million in new sales tax and put 75 percent toward property tax relief, that could cut property taxes by $8 million.

That’s an average property tax cut of 12.5 percent, or $125 for a $1,000 tax bill.

But most middle income folks would lose that to the increased sales tax.

Someone who makes $35,000 will pay $124 a year for every 1 percent of sales tax, according to statistics from the U.S. Bureau of Labor and the Idaho Division of Financial Management.

Actual numbers are impossible to predict, but the principle is the same: The more residents spend, the more they’d pay in sales taxes. The more expensive their home, the greater their property tax break.

“The net effect (on middle income homeowners) would be about even,” said John Hendrickson, city administrator for Post Falls. Plus the cities and counties would have an extra $4 million.

That leaves too many questions for retired teacher Katherine Schaefer.

She said property taxes on her 160-acre Ramsey Road farm have tripled in recent years. At 69, she and her husband now live on a fixed income and spend little during the year.

In other words, Schaefer likely would profit from an optional sales tax.

She still opposed the idea. If she ever sold her land she’d lose any property tax cut, she said, but still would pay more for milk and toothpaste.

“Your budget still only goes so far,” she said. “And taxes never go down, only up.”

Officials and others pointed out that under this bill, voters would decide up-front how long they wanted the tax in place and how the money would be used. Voters also could repeal it early by initiative.

“We’re not looking at this as a miracle cure,” Hendrickson said. “I live here, too, so the last thing I want is to raise my own taxes.”

At this stage, those assurances aren’t enough for some residents.

Asked about the proposal while grocery shopping last week, resident Virginia Way angrily called it a bad idea.

She recalled legislators in the late 1970s promising to eliminate a 3 percent statewide sales tax after three years. Instead, she said, it grew to 5 percent.

Two aisles away, retiree Walter Heartman recalled the same thing.

“I don’t care what they say, I bet they’ll give us the sales tax and my property taxes will still go up,” he said.

, DataTimes ILLUSTRATION: Color Photo; Graphic: Kootenai County top taxpayers


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