Rooms & Meals Tax Reviewed as Means to Close Budget Gap in Falmouth

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By: Christopher Kazarian
Published: 09/07/10

This November, Town Meeting members will debate the merits of increasing local options taxes as a way to boost lackluster revenues in Falmouth. And there is also a strong chance they will consider two articles that petition the Legislature to impose room occupancy taxes on vacation rentals. One would be geared toward homes rented out on a short-term basis, while another would do so for timeshares.

A total of five articles are set to be placed on the warrant that attempt to boost the town’s revenues, which have sagged in recent years and have led to budgetary cuts, a hiring freeze, and forced public employees to take furloughs, in effect reducing their salaries.

But over the past month public officials, from Town Manager Robert L. Whritenour Jr. to selectmen to department heads, have been meeting to address the town’s short-term fiscal health, seeking to find ways to make up a $400,000 shortfall for this fiscal year. Town leaders are blaming cuts at the state level for that budgetary gap.

On Wednesday of last week the group met at town hall as part of a budgetary subcommittee looking to find ways to account for the $400,000 and put the town back on solid financial ground.

Mr. Whritenour brought up the local options taxes, which could be increased for hotel/motels from 4 to 6 percent. The town also has the option of increasing the meals tax by .75 percent, which would equate to an additional 75 cents on a $100 bill, Mr. Whritenour said.

No Room for Taxes?

The bulk of the discussion focused on the hotel/motel tax as former selectman Kevin E. Murphy, owner of Shucker’s World Famous Raw Bar in Woods Hole, and Jay Zavala, president of the Falmouth Chamber of Commerce, presented a concept that could convince owners of hotels and motels to support such a proposal.

Mr. Murphy explained that the idea would entail taking 25 percent of the hotel/motel tax increase and designating it specifically into a destination marketing fund. Similar funds, he said, have been set up in Provincetown, Sandwich, Yarmouth, and Plymouth to attract tourists to those nearby towns.

Finance Committee Chairman Gary W. Anderson said it would be wise for Mr. Murphy and Mr. Zavala to show how other these other towns actually spend that money.

If the marketing efforts are successful, Mr. Murphy said, it could be a financial boon to the town as hotel and motels will be able to capitalize on their excess inventory.

In terms of the actual fund, he said a committee consisting of seven members would oversee the use of it. That board would be appointed by selectmen and consist of three members from the larger tax-generating vacation rental properties, those having 40 rooms or more, with two representing the smaller ones, such as bed and breakfasts.

The Falmouth Chamber of Commerce would have one representative as would the board of selectmen, Mr. Murphy said.

Chairman of the Falmouth Board of Selectmen Brent V.W. Putnam asked why larger properties would receive more seats than smaller ones. He said he would like to see a breakdown in the number of rooms the larger ones provide versus the smaller properties.

Destination marketing

Town Meeting would have ultimate oversight of the board and how it uses its funds, Mr. Murphy said, explaining the committee would have to make an annual presentation on how it expended money over the previous year and what it plans to do in the upcoming year.

Based upon projections Mr. Murphy estimated $112,000 could be used for destination marketing, as the tax hike could increase revenues by roughly $450,000.

Falmouth Town Accountant Mary E. Alwardt argued against devoting this amount of money for marketing, noting it could be used in other departments that are struggling to get by.

“This isn’t a giveaway,” Mr. Zavala said. “It is an investment.”

Mr. Murphy stressed that this proposal would be a way to garner the support of the hotel and motel industry in Falmouth.

At the same time, Assistant Town Manager Heather B. Harper said tourists utilize services that the town provides, giving a few examples that included the beaches or keeping the streets trash free. “Ask Jay if we are delivering [these services],” Ms. Harper said.

Town Assessor David A. Bailey said this would give Falmouth an option to raise revenues that would not negatively impact residents or business, noting the tax would be charged on tourists.

He also said it is not unusual for a government to subsidize the marketing of a region as a tourist destination.

At one point, Mr. Putnam recommended using some of the money intended for destination marketing to go toward infrastructure improvements to resources, such as the beaches, that bring visitors to Falmouth in the first place.

As the subcommittee discussed the idea, they also touched upon taxing timeshares, which may also go before Town Meeting members, asking them to petition the Legislature to give Falmouth the ability to impose a rooms rental tax on these properties.

If that were to pass, Mr. Anderson noted the town would also see a boost in revenue, which would, in turn, increase the amount of money that would go to destination marketing.

As a result, some proposed putting a cap on the amount that could be spent on destination marketing, but Mr. Murphy argued against doing so. He noted that inflation could ultimately limit what that money would be able to do in the future.

Meals tax 'unpalatable'

Mr. Anderson asked if businesses would support an increase in the meals tax, noting that the restaurants would benefit through the increase in visitors as a result of new marketing efforts.

Mr. Murphy said this would not be a good move as it would impact every single resident who goes out to dinner. The increase in that tax, he said, would also translate into lower earnings for waitstaff, whose tips would most likely be cut.

He also lamented the fact that Falmouth continues to look at ways to raise taxes or increase fees. “When do we stop?”
he asked.

While the subcommittee focused on the hotel/motel tax, Mr. Anderson suggested it may be better to focus on the meals tax. He noted that a total of 114 cities and towns throughout Massachusetts have increased this tax, including nine on Cape Cod, while only 85 have hiked the hotel/motel tax, with only four of those on the Cape.

“So the meals tax is perceived as more palatable,” he said.

Mr. Bailey said hiking the meals tax is an opportunity town officials should look at seriously because it has the opportunity to reach such a large base of potential revenue.

The subcommittee agreed to place the meals tax proposal on the table for selectmen to place on the Town Meeting warrant.

There will be two articles related to the hotel/motel increase, with one tied to the destination marketing fund Mr. Murphy and Mr. Zavala proposed. If that fails, Town Meeting could have the opportunity of passing the tax increase without the destination marketing fund attached to it.

 

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