Town to consider hearing public on tax cut
A Front Royal town councilman wants to make the local hotel tax rate even with Warren County’s.
The town would need to lower its lodging tax rate from 6 percent of net sales to 2 percent to equalize the levy. Town Councilman Bret Hrbek says the recent agreement reached with Warren County over sharing revenue from the U.S. 340-522 corridor creates an uneven playing field for hotels in Front Royal.
Council plans to consider at its meeting today a motion to hold a public hearing on Hrbek’s suggestion that the town lower the lodging tax rate. A majority of council must vote to approve the motion just for the town to hold a hearing to gauge public sentiment.
“The MOA (memorandum of understanding) that we made with the county forces us to do that,” Hrbek said Thursday. “Otherwise we have put our own hotels and motels in the town limits, who are the people we actually represent, at a disadvantage.”
Lodging tax is considered a pass-through levy paid by the guests. While not a direct tax on the businesses, some critics of the levy say higher charges deter customers.
The Hampton Inn in Front Royal charges the town levy while the Holiday Inn in the county charges the lower rate. The difference doesn’t amount to much for the individual guest looking for a room on the fly who might not care about the tax rate. But someone making reservations might take the rate into consideration. The difference also can add up for groups making reservations or individuals seeking long-term accommodations, Hrbek noted.
“We have an obligation to make sure there’s a level playing field and we shouldn’t be putting them at a disadvantage or they’ll go out of business,” Hrbek said.
Lowering the tax rate would cost the town approximately $200,000-$210,000 a year in revenue. However, the town can expect to make up the loss through the recently approved agreement that calls for the county to give Front Royal 30 percent of the lodging tax revenue it collects from the corridor.
Council briefly discussed the matter at a work session last week. Vice Mayor Hollis Tharpe questioned how much competition hotels in town have in the county.
Lodging taxes make up about 2 percent of the revenue in the town’s fiscal budget. By comparison, real estate taxes make up 12 percent while personal property taxes make up 7 percent. The fiscal 2016 budget assumes the town will collect $325,000 in lodging tax revenue. The town collected $291,537 in fiscal 2013, $336,088 in fiscal 2014 and $304,833 in fiscal 2015, according to data provided by Finance Director Kim Gilkey-Breeden.
The memorandum of agreement approved by council in August calls for the county to share 30 percent of the lodging tax it collects from hotels in the corridor with the town. Front Royal, which already provides utilities to the corridor under an older deal, agrees to extend water and sewer service to the Crooked Run West development under the new agreement.
Crooked Run West could likely include one or more hotels and plans are in place to build a Marriott in the corridor, Hrbek said. More hotels would give both the county and the town additional revenue. However, as Hrbek has explained, the 30 percent share of the lodging tax must come from the county’s general fund. The county would need to raise the real estate tax rate to come up with the town’s share, Hrbek said. Such a rate increase also would apply to town taxpayers.
Contact staff writer Alex Bridges at 540-465-5137 ext. 125, or email@example.com