Hotel tax non-payment leaves groups short of cash

Visitors to Berkeley Springs who stay at a local hotel or B&B pay an extra 3% on their lodging bill for the privilege of sleeping in the area.

Many won’t notice the hotel-motel tax being added to their room charge, but the local groups supported by that tax certainly notice when their funding dries up.

The way the hotel tax is set up, the 3% surcharge is turned over to the Town of Bath or the Morgan County Tax Office, depending on the location of the lodging establishment. The government bodies divide the tax revenue based on state guidelines.

Half of the tax revenue goes to the county’s travel bureau – Travel Berkeley Springs (TBS) – and the other half to community groups engaged in recreational, cultural or beautification activities.

Groups like Morgan County Parks & Recreation, Foxglove Garden Club and Morgan Arts Council receive some of these funds.

But when the tax money doesn’t come in, those groups only get a portion of their allocation and have to adjust their budgets to cover the shortfall. That’s been the case recently with several non-profit groups and TBS.

Bath Town Clerk Margie Allgyer said the town estimated it would collect $37,000 last year in hotel taxes, but received only $13,649.

So, some groups got as little as $74 in allocations from the hotel fund, when they had been told they would get several hundred.

Collection problem
While the lodging business has been tight because of the national recession, town and tourism officials agree that’s not the main reason for the drop in hotel tax revenue.

Some hotels simply aren’t turning over the tax and no one is making them pay.

“We have a collection problem,” Town Councilman Jim Slough said last month.
“We need to set up a system to collect the tax. We have to go enforce the law. It’s not going to be pretty,” Slough told his fellow council members during a town meeting.

TBS director Laura Smith said her group is sympathetic to lodging businesses that are struggling during tough times, but she is worried that some use the lodging tax as their “slush fund” to cover operating expenses, which is clearly against the law.

“We’re down 72% compared to the year before. Business is down, but not by that much. People just aren’t paying the tax,” said Stephanie Rebant, a TBS board member and lodging business owner.

Records show delinquencies
Town records for the last 12 months show that hotels and motels inside the town limits took their time turning over the lodging tax – some taking as many as eight months to pay.

Several of the 12 establishments paid nothing for months, though most non-payers were small businesses with just one or two guest rooms. On average, a third of the hotels were more than a month late sending in their tax payment.

The biggest delinquency involves the largest hotel in town. The Country Inn has not paid any hotel tax since June 2009, putting the hotel at least 16 months behind in remitting the 3% tax it collects from its guests, according to town records.

While the town doesn’t know how much the Inn owes in back lodging taxes, payments from Highlawn Inn – which has about a quarter of the number of rooms -- generally range from $300 to $400 per month.

Tax drums up business
“It’s a crisis cash flow issue,” said TBS board member Jeanne Mozier.
The travel group has stopped advertising Berkeley Springs’ attractions in newspapers, magazines and other outlets, because they don’t have the money.

Mozier fears this break in advertising local attractions to potential visitors will undo years of promotional efforts on behalf of Berkeley Springs.

“We’ve lost momentum and we have to figure out how to build that back up,” she said.

County collections up to date
Major lodging businesses in the county, including Cacapon State Park and the Best Western, have largely been keeping up with their payments, said Kim Michael, the county’s Chief Tax Deputy.

Some of the dozens of inns and vacation rentals spread around Morgan County have been a few months late in getting their taxes in, and some businesses pay quarterly instead of monthly, but do send their payments.
Last year, the Morgan County Commissioners contacted lodging businesses to remind them of payment and reporting requirements, after learning of tax delinquencies and seeing how it hurt community groups.

Council wants action
The issue of collecting the tax has resurfaced at several recent town meetings, with council members questioning what could be done to enforce the tax law.

Town clerk Allgyer wrote the hotels this summer asking for their cooperation in reporting room revenue and remitting the tax.

Police Chief Craig Pearrell said he has talked to inn owners face to face about keeping up with payments.

But town officials want Pearrell to take further steps to collect the tax. At their October 5 meeting, council members reviewed state law and agreed that Pearrell should start issuing citations to non-payers.

Councilman Kenny Easton said town officials had already asked police to enforce the law.

Councilman Scott Merki said the current situation is unfair to businesses that have been paying. “We’re just going to have to apply a little pressure,” he said.

Criminal charges possible
State law says non-payment of the tax constitutes a misdemeanor, with a penalty of up to $500. After the first offense, withholding payment is considered a felony.

Mozier said part of the problem is that the town doesn’t get to keep any of the tax, so there’s no incentive for them to make a real effort to collect it.

Mayor Susan Webster confirmed that the town doesn’t even get an administrative fee for handling the paperwork, disbursing the money or keeping the tax records.

Webster agreed that groups getting the hotel funds have been strained by the decrease in revenue, but said she understands that the lodging business is tough right now.

“I hope the fall season is good enough that these businesses can catch up,” she said.