HomeMy WebLinkAboutFS 2016-10-04 Item 2C.2 - Budget - Lodging Tax Update: Permitted UsesCity of Tukwila
Allan Ekberg, Mayor
INFORMATIONAL MEMORANDUM
TO: Finance and Safety Committee
FROM: Brandon J. Miles, Business Relations Manager
CC: Mayor Ekberg
DATE: September 23, 2016
SUBJECT: Permitted Uses of Lodging Tax Funds.
ISSUE
The City charges a 1% special excise tax on the sale of or charge made for overnight lodging
stays. State law limits how these funds can be used. This memo outlines the limits on the use of
lodging tax and discusses permitted and prohibited use of the funds'.
BACKGROUND
Revised Code of Washington (RCW) 67.28.1815 limits the use of lodging tax funds as follows:
[A]II revenue from taxes imposed under this chapter shall be credited to a special fund in
the treasury of the municipality imposing such tax and used solely for the purpose of
paying all or any part of the cost of tourism2 promotion 3, acquisition' of tourism - related
facilities, or operation of tourism - related facilities.
RCW 67.28.1816 goes into further detail about permitted expenditures of lodging tax funds,
specifying:
Lodging tax revenues under this chapter may be used, directly by any municipality or
indirectly through a convention and visitors bureau or destination marketing organization
for.
(a) Tourism marketing;
' RCW 67.28 places strict limits on the type of entities eligible to receive lodging tax funds. Additionally,
approving expenditures of lodging tax funds is a two -step process, requiring review by the City's Lodging
Tax Advisory Committee and City Council. State Law gives considerable authority to the City's Lodging
Tax Advisory Committee in reviewing and approving funding requests. For more information on entities
eligible to receive funding and the process for awarding funds, see the memo dated September 22, 2016,
entitled, "Lodging Tax Approval Process."
2 RCW 67.28.080 defines `Tourism" as "economic activity resulting from tourists, which may include sales
of overnight lodging, meals, tours, gifts, or souvenirs."
3 RCW 67.28.080 (6) defines `Tourism promotion" as "...activities, operations, and expenditures designed
to increase tourism, including but not limited to advertising, publicizing, or otherwise distributing
information for the purpose of attracting and welcoming tourists; developing strategies to expand tourism;
operating tourism promotion agencies; and funding the marketing of or the operation of special events
and festivals designed to attract tourists."
' RCW 67.28.080 (1) provides the following definition of "Acquisition" ... "includes, but is not limited to,
siting, acquisition, design, construction, refurbishing, expansion, repair, and improvement, including
paying or securing the payment of all or any portion of general obligation bonds, leases, revenue bonds,
or other obligations issued or incurred for such purpose or purposes under this chapter."
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INFORMATIONAL MEMO
Page 2
(b) The marketing and operations of special events and festivals designed to attract
tourists;
(c) Supporting the operations and capital expenditures of tourism - related facilities5
owned or operated by a municipality or a public facilities district created under
chapters 35.57 and 36.100 RCW; or
(d) Supporting the operations of tourism - related facilities owned or operated by nonprofit
organizations described under 26 U.S.C. Sec. 501(c)(3) and 26 U.S.C. Sec.
501(c)(6) of the internal revenue code of 1986, as amended.
DISCUSSION
Several Councilmembers have inquired about permissible uses of lodging tax funds. Based
upon the limitations outlined above, staff would like to provide some guidance on the future use
of lodging tax funds.
A simple question that can be asked to help determine if lodging tax funds can be used is:
"7s the activity, operation or expenditure designed to increase tourism or welcome tourists to the
City ?"
If the answer is yes, then lodging tax might be able to be used after further analysis of the
specific funding request.
Tourism could include people who travel and stay overnight in the City (overnight visitors) or
those who travel to the Tukwila for the day (day visitors). Economic activity from Tukwila
residents would not be considered tourism.
The following lists examples of activities, operations and expenditures that would likely be
eligible for lodging tax funding. This is not intended to be an exhaustive list.
• Marketing and advertising intended to bring overnight visitors to the City.
• Marketing and advertising intended to bring day visitors to the City.
• Installation of new "way finding" signs for tourists and installation of City identification
signs.
• Sponsoring, operating, and marketing of special events or festivals, either by the City or
third parties, if designed to bring tourists to the City.
• Installation of banners on street poles or across city streets if either welcoming tourists to
the City or promoting upcoming events.
• Capital improvements, such as park improvements or trail improvements, designed to be
used primarily by tourists.
• Maintenance of parks primarily used by tourists, such as Fort Dent Park or the Green
River trail.
5 RCW 67.28.080 (7) defines "Tourism- related facility" as, "...real or tangible personal property with a
usable life of three or more years, or constructed with volunteer labor that is: (a)(i) Owned by a public
entity; (ii) owned by a nonprofit organization described under section 501(c)(3) of the federal internal
revenue code of 1986, as amended; or (iii) owned by a nonprofit organization described under section
501(c)(6) of the federal internal revenue code of 1986, as amended, a business organization, destination
marketing organization, main street organization, lodging association, or chamber of commerce and (b)
used to support tourism, performing arts, or to accommodate tourist activities."
38 ZACouncil Agenda ItemsWayoes Office \LTAC Businesses \Memo 2, Eligable Activites.docx
*
Supporting marketing and operations Of g0veDlrOeDi entities (City Of Tukwila and SSATA\
or nonprofit organizations, when activities performed are designed to attract tourists to
the City Or welcome tourists tOthe City.
The following lists examples Of activities, operations and expenditures that would likely NOT be
eligible for lodging tax funding. This list is not intended to be exhaustive.
* Funding basic general governmental Of the City «
• Marketing and advertising directed @tresidents.
• Way finding signs in residential 8[08G intended for residents.
* Sponsoring 0f special events O[ festivals intended for residents.
• Capital i[DpnJv8DlgDts' such as park iFOpnOv8nn8n[S' intended for residents (such as 81
parks used primarily hv[eGid8D1G).
• Maintenance of parks primarily used by residents, such as Hazelnut Park.
• Capital expenditures for tourism related facilities owned or operated by non-profit.
Reporting Requirements
RCW 67.28.181G requires that entities receiving lodging tax fund report metrics back to the
municipality. Per SiG18 L8vv the fOUDvvng is required to be submitted to the City in the project
close out for 8 specific funding request:
1. Actual number Of people traveling for business 0[ pleasure ODRtrip.
2. Number Of people traveling for business and pleasure and staying iDpaid
accommodations in the City.
3. Visitors who traveled more than 50 miles or more from their place Of residence Of
businesses for the day 0[ staying overnight.
4. ViSiiO[G who traveled from another county 0rstate.
|tiG important iO note that the City's Lodging Tax Advisory Committee is granted significant
authority bvRCVV87.2G.1G16 when reviewing lodging tax requests. The City Council cannot
reverse a decision of the Committee if the Committee chooses not to approve a specific funding
application. Traditionally, the Committee has considered the metrics outlined above very
strongly when considering funding requests.
RECOMMENDATION
Information and discussion only. Forward tO the October 10'2018 Committee Of the Whole
meeting for discussion by the full Council.
ATTACHMENTS
sThe City is permitted to charge special funds, like the lodging fund, for costs incurred by the general
fund to support the
DCounoU Agenda |mmsWaymeeOffioe\LTACBvoinesomsWemou.BigableAmivimo.dox