Council talks tax trends and STR revenue share – Sedona Red Rock News

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.

Sales Taxes

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.

Council defers Jablow’s OHV ban pending negotiations – Sedona Red Rock News

The Sedona City Council agreed to defer consideration of Mayor Scott Jablow’s proposed OHV ban pending the city’s completion of a voluntary agreement on noise and traffic reduction with four of Sedona’s OHV rental companies during its meeting on Tuesday, Aug. 22.

As summarized by city attorney Kurt Christianson, the four rental companies wrote in a letter that they will commit to installing turn signals on their vehicles, providing customer education on driving on paved roads, governing their vehicles to restrict them to a maximum speed of 35 mph, installing quieter mufflers on their vehicles as available, discouraging the use of Morgan Drive, installing color-coded flags on their vehicles and supporting the city’s efforts to petition the U.S. Forest Service for a permitting system and daily limits for OHV trailheads.

“In a paragraph in the agreement, there’s talk about vehicles monitored by GPS,” Councilman Pete Furman said. “What’s the status of the discussions in the agreement here with our rental companies about whether they are willing to step up and do private enforcement of their private agreements with customers for speed limits?”

“We’ve actually taken the next-step approach that if there’s a rapid braking or there’s a rapid acceleration, it actually sends us a company email instantly,” said Dan Candler of Outback ATV. “For instance, somebody’s at the front desk, they would see this vehicle is now acting erratically. That way, they would take a closer look and they can replay the whole route in real-time of the vehicle … We can reach out to the customer right then and there and find out if something’s wrong with the car, they’re behaving badly, then we can take care of it right away.”

“We do have currently certain penalties for certain things, and one of them is for certain locations that we don’t allow vehicles to go to, and if they go there, then it’s clearly stated in the contract that you will be penalized financially for that,” Candler added. He said that such penalties were rare due to their customer education process.

Permit System

Jablow discussed trying to get the U.S. Forest Service to impose an OHV permitting system to limit access to public trails within the Coconino National Forest. Most OHV trails are outside the city limits.

“The permitting system is key,” Jablow said. “What I really want is that permit system, and they’ve agreed to support that permit system,” referring to the OHV companies.

“Our ultimate goal is to get a permitting system,” Vice Mayor Holli Ploog agreed. “More than two years ago we had a meeting with the Forest Service here and we said we need a permit system.”

“There’s an oversaturation of this use in the forest area, there’s an oversaturation of this use on the city streets of Sedona. A permitting system is the only thing … that is going to limit that,” Councilwoman Kathy Kinsella said. “The industry support for a permitting system, which I’m grateful for, is a big give.”

She described it as “the only hope” of getting the Forest Service to concede to the city’s demand.

“A linchpin to making real progress for the long haul is getting the U.S. Forest Service to act, which they have been woefully slow and unwilling to do so,” Councilman Brian Fultz said.

“If we can reduce the number overall, we would have less in the forest, less in our neighborhood, less on 89A.” Jablow said.

“Get comfortable. You’re going to be waiting,” Councilwoman Melissa Dunn said regarding the permit proposal.

“If the Forest Service decides no permits, then we go the legal route, and we’ll get sued,” Jablow said. “We can always bring back the ordinance,” he added, before remarking, “I’m not using that as a hammer.”

“I do not believe that implementation of an areawide limited entry permit system for OHVs is feasible, nor do I believe that it would be the correct management action at this time,” Coconino National Forest Supervisor Laura Jo West wrote to the council on Jan. 27, 2022. “Motorized use is a legitimate use of national forest lands.”

No USFS representatives attended the meeting. The Greater Sedona Recreation Collaborative, an ad hoc working group of government officials and business owners discussing OHV use, also had no formal representation at the meeting.

Road Closures

“I’m concerned about Morgan Road,” Jablow said, noting that the process to implement a permitting system was likely to be lengthy. “I was wondering if we could discuss, and see how the council feels, about this ordinance going into effect — the banning of OHVs on Morgan Road only until such time as there’s a permitting system in place … That would help remedy some of the issues that the people on Morgan Road are going through.”

“It’s within council’s authority to designate OHV routes and to close routes to OHVs,” Christianson said.

“Why Morgan Road?” Dunn asked. “I hear lots of residents complain about Schnebly [Hill Road]. Why would we choose just the one? Are we in essence opening ourselves to more annoyance from residents who say, ‘What about my road?’ Should we be considering, if we were to close this, to close it to multiple roads where we know that residents today have issues with the volume of traffic?”

“It’s a fair question,” Christianson said. “If you’re going to close one, why not the others?”

“In a perfect world, I’d ban ATVs, but I’d also ban motorcycles and people who don’t use their turn tickers. We don’t live in a perfect world,” Councilwoman Jessica Williamson said. “Under the voluntary agreement [residents are] going to get quieter vehicles … I don’t see any benefit to the city or the residents to be caught up in litigation while nothing gets better without any guarantee or any reason to think at the end of it the city would prevail anyway … We can fashion a compromise that gives residents who object to OHVs some relief.”

“I look forward to a time when if someone goes over 50 miles an hour on a trail, the computer shouts ‘slow down,’” Williamson added.

Debate over ‘Safety’

“The ordinance, as I understood it, was about improper equipment for safety within the jurisdiction of Sedona,” Dunn said. “When I look at the volunteer list [in the letter from OHV owners], I see very few items that have anything to do with safety. There’s nothing in our ordinance that has anything to do with noise.”

“A lot of these do have to do with safety,” Christianson said, then referenced the agreement’s speed limits, education for renters and GPS installation requirements as examples.

“Do we have a big problem that you’re aware of in Sedona with OHVs going beyond 35 mph now?” Dunn asked.

“Not generally, ” Christianson said.

“I wasn’t quite sure how the GPS was actually a safety thing,” Dunn continued.

“That safety is primarily for outside the city, so they can’t do doughnuts,” Christianson said.

Dunn then described the proposed agreement’s provisions as “soft language” and “squishiness” and repeatedly said that “we have no control” over a number of aspects of the OHV industry.

“It doesn’t apply to anyone who owns their own [OHV], it doesn’t apply to anyone who brings in their own from outside of the state or outside of our city,” Dunn said. “It doesn’t apply to any new businesses that open, because they have not signed this commitment, nor does it apply to anyone who buys a business within the city limits … There is a lot of faith that we as a city are having to put in the hands of a few businesses.”

“If this meets our demands, then this ordinance should be tabled, because it doesn’t follow what’s inside of the voluntary commitment,” Dunn summarized. “At this point, what I am is a little confused as to what we as a council were and are and want to actually do for the residents.”