DATE: May 16, 2016
TO: Board of Mayor and Aldermen
FROM: Eric Stuckey, City Administrator
Russ Truell, Assistant City Administrator
SUBJECT:
title
Discussion of Procedure for Adopting an Increase in the Hotel/Motel Tax rate for the City of Franklin
body
Purpose
The purpose of this memorandum is to provide information to the Franklin Board of Mayor and Aldermen (BOMA) concerning the procedure for adopting an increase in the Hotel Tax rate and the history of the tax.
Background
At a previous work session, citizen comments were provided concerning an increase in the transient occupancy tax (hotel tax) administered by the City.
Legal Authority. Cities with hotel or motel lodgings may consider a hotel-motel tax to enhance city revenues. The proceeds from the hotel-motel tax can be used for purposes authorized in enacting ordinance, private act, or general law. Many cities designate and use the tax proceeds for tourism development; others use the proceeds in their General Fund.
“Hotel” is defined as any structure or space, or any portion thereof, which is occupied or intended or designed for occupancy by transients for dwelling, lodging, or sleeping purposes. It includes any hotel, inn, tourist camp, tourist court, tourist cabin, motel, or any place in which rooms, lodgings, or accommodations are furnished to transients for consideration. [T.C.A. § 67-4-1401.]
Tennessee general laws provide for levying a hotel-motel tax in home rule cities and metropolitan governments. Private act chartered cities, such as Franklin, and most general law chartered cities (mayor-aldermen, manager-council, and modified manager council chartered cities) must be authorized by private act to levy the tax. There are exceptions for certain general law cities, which may levy the tax by ordinance passed by a two thirds vote of the governing body.
Action taken by City of Franklin. The City of Franklin in 1996 requested a Private Act of the Legislature creating the Franklin Hotel/Motel Occupancy Tax. The legislation authorized the City to “levy and collect a privilege tax upon the privilege of occupancy in any hotel of each transient in an amount not to exceed 5%.”
In Ordinance 1996-61, the Board of Mayor & Aldermen exercised the Legislative authorization and adopted a hotel occupancy tax. The rate was established at 2%. The proceeds were used to support the debt service and potential operating losses of the Cool Springs Conference Center, which was completed in 1998 and jointly owned with Williamson County.
In 2004, the hotel tax rate was increased to 4% in order to provide sufficient revenues to support additional debt service for the purchase Harlinsdale Park.
As the number of hotel rooms increased and the revenue per room increased, providing greater proceeds from the tax, debt service on the purchase of Eastern Flank Battlefield Park was added.
In 2006, the Board of Mayor & Aldermen agreed to dedicate 1% of the 4% (one-fourth of the total proceeds) to the Williamson County Convention and Visitors Bureau, in order to support tourism and promotion of the City of Franklin.
Beginning in 2008, improvements to Harlinsdale and Eastern Flank parks were funded by the hotel tax. Tourism-related improvements to the City, such as streetscape and signage, were added to the hotel tax funding formula after the bonded debt on the Conference Center was extinguished in 2015.
Limitations on tax rate. Generally, there is no limit on the tax. However, after May 12, 1988, T.C.A. § 67-4-1425 provides that a city located in a county that has levied a hotel motel tax cannot levy a city hotel-motel tax under authority of a private act. The provisions of T.C.A. § 67-4-1425 do not apply in Blount, Dickson, Rutherford, Shelby and Williamson counties.
The City is authorized in the Private Act to raise the current 4% rate to 5%. Discussions were held in 2005, 2006, and 2008 related to raising the rate. Those discussion were a direct result of bills introduced in the State Legislature that would have prevent cities from exercising their previously granted authority to raise the occupancy tax to 5%.
In 2005, an ordinance to raise the rate passed first reading, but failed on second reading after a representative of the hospitality industry argued that the small increase would adversely affect hotel occupancy and the funds should be devoted to promoting tourism rather than “filling city coffers.” [To staff’s knowledge, none of the hotel tax proceeds paid to the City of Franklin has ever gone to the General Fund.] In 2006 and 2008, similar ordinances to increase the rate were prepared but never introduced due to lack of support.
Other considerations. If BOMA undertakes an elevation in the hotel tax rate, one consideration that should be made is the future maintenance and possible expansion of the Conference Center. It may be necessary at some time to fund major renovations and/or maintenance to the structure. Major repairs to the roof, expanding the conference area by 12,000 square feet to be competitive, or increasing parking capacity with structured parking would requires substantial investments that the City would be reluctant to make from revenue sources other than the hotel occupancy tax. Further capacity from the Hotel/Motel tax could also go to support other capital investments that contribute to tourism activities and facilities within the community.
Financial Impact
Based on currently available information about occupancy rates, the number of hotels, quantity of rooms, and average daily rates, an additional 1% hotel tax would generate approximately $852,000
Recommendation
rec
Staff has no recommendation.