A Fairbanks North Star Borough assembly member wants to ask voters if the borough should hike its hotel-motel tax rate from the current level of 8% to 12%.
Also known as a bed tax, that’s the rate tacked onto the cost of booking short-term rentals, like hotel rooms.
Assemblymember Tammie Wilson is sponsoring the ordinance, which, if passed by the assembly, would put the question on the ballot during municipal elections this October. Were yes votes to prevail, the 4% increase would start in January.
Property taxes account for the majority of borough tax revenues, bringing about $108 million into the general fund last fiscal year, according to a borough financial report on the 2024 operating budget. In the same budget cycle, the bed tax was the second-highest source of tax revenue at $3.5 million.
At an assembly finance committee meeting Tuesday, Wilson said her ordinance offers a way to shift some of the tax burden from locals to visitors.
“I figured that there’s a lot of people who come in town, and they are able to go to our parks and everything else, and I don’t think it hurts that they also participate in giving us funding to be able to keep those up,” she said.
Borough finance staff told the committee Tuesday that they project the new rate would raise about $1.5 million in additional bed tax revenue for the upcoming fiscal year, which runs from July 1 to the end of next June. That estimate only accounts for six months of short-term room rentals, though, since the increase would go into effect in January, bisecting the fiscal year.
Wilson says whether that change is realized should be up to borough voters.
“I think the voters have a right to weigh in on this, as … this would have an impact on them as well,” she said.
Wilson’s ordinance would also tweak the mechanism in code that governs how the bed tax rate layers with the two other municipalities within the borough: the cities of Fairbanks and North Pole.
The change would ensure that the borough can collect a 4% tax from operators within either of the municipalities on top of bed tax rates levied separately by the cities. The borough currently doesn’t get any revenues from short-term rental sales within North Pole or Fairbanks city limits.
Borough attorney Jill Dolan also informed the committee Tuesday that the new rate, if approved, would correspond to a slight bump in the borough’s tax revenue cap. That’s because part of the revenues from bed taxes are placed into a special fund the borough uses to support tourism.
“So you’re not changing the formula. Nothing is changing formulaically. It’s just going to increase your cap because you’re increasing the amount of tax revenue that goes into the room tax fund, and it’s excluded from the cap,” she said.
Local commerce and visitor industry leaders were quick to respond to the proposal. And they don’t like it.
Elizabeth Griswold is the board chair for the local tourism marketing agency Explore Fairbanks and the general manager of Pike’s Waterfront Lodge. At last week’s regular assembly meeting, she said now is not the time to target visitors for tax revenue.
In a recent survey gauging industry in Fairbanks, responses from the leisure and hospitality sector showed the sharpest decline in optimism when comparing 2024 outcomes to 2025 outlook.
“If you talk to any hotelier, talk to restaurants, talk to tourist attractions – bookings are down this year,” Griswold said.
The assembly has yet to vote on the measure, so it could pass, fail or see amendments, and Wilson said Tuesday she’s not married to the 4% increase. The ordinance is scheduled for public hearing at the assembly’s June 26 regular meeting.