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| 12/29/2006 8:30:00 AM | Email this article • Print this article | Eagle River's special sales tax is in effect
Resort area sales tax is a mind-bender for some local retailers
Ed Culhane
Reporter
Roxann Murphy thought she had to charge furniture customers receiving delivery in Eagle River an additional half percent sales tax.
So did her accountant.
It's called the Eagle River Premier Resort Area Tax. It went into effect Oct. 1, affecting most stores in Eagle River and many businesses that deliver goods or services to Eagle River.
Murphy's Warehouse delivers furniture to customers from Eagle River.
Her problem was no one she spoke to, apart from her accountant, had heard of the tax.
"People were irate because they didn't know about it," Murphy said. "So I didn't charge it."
Businesses, not customers, are liable for sales taxes, so Murphy figured the business would cover the difference.
"How did this get through without anyone in the whole area knowing about it?" Murphy asked.
In the meantime, an inquiry by The Lakeland Times revealed that Murphy's Warehouse is exempt from the special tax because furniture sales are not associated with tourism.
All clear so far?
"I have to be honest," said Eagle River mayor Jeff Hyslop, "when the state Legislature passed this, they couldn't have made it more confusing if they tried."
Eagle River is not the only municipality in the state with a premier resort area tax, a localized, half percent tax authorized by the Legislature in 1997.
The village of Lake Delton instituted the tax in April 1998, and Wisconsin Dells followed in July 1998.
The city of Bayfield jumped on board on Jan. 1, 2003 and this past October, Eagle River became the fourth Wisconsin municipality to enact the tax.
The idea, said State Sen. Roger Breske (D-Eland) is to provide some relief for property taxpayers in communities that rely heavily on tourism.
The thinking is that tourists should help pay for the "infrastructure" - as in roads, sewers and water mains - they are helping to wear out.
A municipality can enact the local retail sales tax if more than 40 percent of its equalized, assessed value is used by tourism-related retailers
The tax is collected by the state Department of Revenue and is returned to the municipality. The proceeds may only be used for infrastructure expenses.
The cities of Bayfield and Eagle River were granted a legislative exemption to the 40 percent rule, according to state Department of Revenue.
The Eagle River resort tax was just put in place so there is no track record, said Hyslop.
However, using data from Bayfield, officials in Eagle River project the city could receive an additional $100,000 to $150,000 in tax revenue. To be safe, they budgeted for just $75,000 in additional tax revenue, Hyslop said.
The confusion, Hyslop said, is in determining which businesses are required to pay the tax once a municipality has enacted it.
Under the law, this is determined by a retailer's SIC code, which can be found in the Standard Industrial Classification Manual published by the U.S. Office of Management and Budget.
Originally, the law specified 21 classifications as being liable for the resort area sales tax. These included retail bakeries, eating places, liquor stores, hotels and motels, souvenir shops, amusement parks and others.
In 2005, an additional 23 classifications were added, including sellers of clothing, books, stationery, jewelry, toys and luggage. Florists, tobacco stores, department stores and others were tossed in the mix.
"The average business person doesn't even know what their SIC code is," Hyslop said.
Complicating the formula are businesses such as large grocery stores or hardware stores with diverse products. Under their SIC code, such businesses are not liable for the tax. They sell plants and flowers, for instance, without having to charge the resort area tax, while the florist down the street must charge the tax.
"It's a little confusing," Breske said. "We've talked to folks at the Department of Revenue, looking for a recommendation on (statute) language."
So if you shop in Eagle River and are charged 6 percent sales tax, it breaks down like this: 5 percent goes to the state, a half percent goes to Vilas County and a half percent goes to Eagle River, to be spent on infrastructure only.
But the county sales tax and the resort area tax are applied differently when applied to the sales of motor vehicles, boats, snowmobiles, mobile homes less than 45 feet long, semi-trailers, all-terrain vehicles and aircraft.
For the purpose of the county tax, the sale takes place in the county where the vehicle is normally kept. For the purpose of the premier resort area tax, the sale takes place where possession transfers from buyer to seller.
Here's an example: A resident of Woodruff, which is in Oneida County, buys a snowmobile in Eagle River, in Vilas County, and takes it home, paying 6 percent sales tax. The half percent resort area tax goes to the city of Eagle River. The half percent county tax goes to Oneida County, because that's where the registered vehicle will be kept.
If your business uses a common carrier, such as UPS or the U.S. Postal Service, to deliver goods into Eagle River, you do not have to charge the extra half percent resort area tax.
But if your business delivers to Eagle River in company-owned vehicles, you might be liable for the tax, depending on your SIC code.
As for enforcement, it works the same way other taxes do.
"We're not a police state where we look at everyone's books," said Merideth Helgerson, a communications officer with the state Department of Revenue.
Business owners are responsible for knowing their tax liabilities, she said. Investigators respond to complaints and run random audits, so failing to pay carries a risk.
In Eagle River, Hyslop and his wife own and run Donna's Cafe, a restaurant.
"My business is one that is collecting the tax and we will be paying the tax," Hyslop said.
But he has been to at least one other restaurant in Eagle River after Oct. 1 that was not collecting the tax.
Did he inform the owner or manager?
"I figured that wouldn't be appropriate," Hyslop said. "I had the city clerk contact them."
Ed Culhane can be reached at ed@lakelandtimes.com.
A detailed explanation of the premier resort area tax is available online at www.dor.state.wi.us. Click on "publications" and under "Sales and Use Taxes" navigate to report 403.
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