Sedona city staff presented the preliminary sales and bed tax results for Fiscal Year 2023 to the Sedona City Council on Tuesday, Aug. 22, which showed that collections were $1,348,274 below Fiscal Year 22 collections and $6,458,502 below the FY 23 budget estimate.
The council also pressed finance director Cherie White on providing the proportion of bed tax paid by short-term rentals. White responded with concerns about taxpayer confidentiality.
“I keep trying to look at this data to understand the impact of short-term rentals on our community,” Councilman Pete Furman said, examining a graph showing historical changes in revenues. “Why can’t we get this split up between short-term rentals and hotels?”
“Because of the confidentiality rules,” White said. She had earlier explained that Arizona Department of Revenue rules prohibit disclosure of any information about a segment of taxpayers when there are fewer than 10 payers in that category on penalty of being denied access to the detailed taxpayer data in future.
“Forgive me for pushing this a little bit more, but why does Scottsdale disclose that number?” Furman asked.
“I can’t answer for Scottsdale,” White said.
“Did you ever try to get an opinion from ADOR as to whether you could actually do this and not violate the rules?” Furman continued.
“It’s not always easy to get to people at ADOR who will be helpful,” White said. “Who I talked to were the sales tax experts from the League [of Arizona Cities and Towns].”
“Given the significance of this issue to our community, I would like to see us push a little bit more,” Furman said. “The customer here is the person staying in the room, and there’s thousands of those people, so we’re not actually exposing the data for the individual … Look at the city of Scottsdale’s very public website and very beautiful charts,” Furman said, holding up an example for the audience.
“If there’s over a thousand short-term rental properties in the city, then if we’re getting an aggregate value of bed tax from them, how does that violate confidentiality?” Councilman Brian Fultz asked. “It’s more than 10 and we’re not looking to understand them at an STR level.”
“It’s not just 10 in the category, it’s if 10 or fewer make up the majority of what’s happening in that category,” White said.
“That would imply that there are fewer than 10 owners of the 1,000 — or that 10 owners of the more than 1,000 STRs somehow have high concentration and therefore they would be exposed by us knowing what the aggregate amount of bed tax is?” Fultz pursued.
“I cannot answer that question in a way that would satisfy you without violating confidentiality rules,” White said.
“I’m going to chime in with Councilor Furman that some way, somehow, we need to push ADOR on this,” Fultz said.
“It’s not based on the owners, it’s on who’s paying the taxes,” City Attorney Kurt Christianson said. “If there’s less than 10 major players who are paying the taxes.”
“That’s goofy,” Fultz said.
City manager Karen Osburn suggested that the city could possibly report a number for traditional lodging, as there are “many more than 10” establishments in that category.
“I’ve had those conversations with the League,” White said. “If I give you that information, you can just take that number minus the other number that you see there and you have the difference.”
“But we don’t know the who behind that subtraction calculation, so how is there a violation there?” Fultz said.
“The rule is if it’s 10 or fewer that make up the majority, we cannot disclose that,” White repeated.
“This is important for our community,” Councilwoman Kathy Kinsella said. “I want that number as well.”
Mayor Scott Jablow and Vice Mayor Holli Ploog directed Christianson to reach out to Scottsdale to find out, in Ploog’s words, “how they’re getting around this.”
“I’ve reached out to them,” White said. “They didn’t respond.” She repeated that she had talked to a League official instead.
“Did he tell you why they’re doing it, how they’re doing it?” Councilwoman Jessica Williamson inquired. “I don’t think this is the right forum to share what he said,” White said.
“Kurt, we’ll proceed,” Williamson said.
FY 23 sales tax collections were $31,755,509, down 3% from FY 22 and 13% below the budget, and bed tax collections were $8,587,989, down 4% from FY 22 and 16% below the budget. Adjusted for inflation, sales and bed taxes were down 6% and 7% from FY 22, respectively.
“We were actually very conservative,” White said of the city’s high predictions for FY 23 revenues. “We thought we were doing very modest increases.” She attributed the city’s official optimism in part to the advice of former Sedona Chamber of Commerce President Candace Carr Strauss, who left the post in March 2022, and the resulting underperformance to tourists choosing to visit Europe instead of Sedona, the effects of inflation, the talk of a possible recession and the city’s hold on destination marketing.
From 2019 to 2023, sales tax collections increased by 49% and bed tax collections by 79% in unadjusted dollars. Cumulative inflation for the four-year period, as derived from the Consumer Price Index, was 20%. The hotel sector saw the largest increases, with hotel sales tax collections rising an unadjusted 82%, followed by retail at 52%. Restaurants and bars paid an extra 38%, while communications and amusement collections rose only 13%, less than the inflation rate.
Estimated taxable sales for the fiscal year came to $907 million. Retail accounted for $309 million of the total, hotels for $252 million and restaurants for $172 million. Average annual hotel occupancy declined from 68% in FY 22 to 65% in FY 23.
Both leasing and retail collections declined in May and June 2023 compared to 2022, while hotel and restaurant collections were down in May compared to the previous year but ticked upward in June by 7% and 13% respectively. Sales and bed taxes were lower from August through October of FY 23 than they were in those same months in FY 22, but were higher in March and April than they were the previous year.