Members of the Eureka Springs City Advertising and Promotion Commission agree that revamping tourism tax collections to include retail businesses would provide a much-needed boost.
How to go about making that a reality, determining its legality, and getting input from all sides involved are crucial moving forward.
At their monthly workshop Wednesday, March 11, commissioners discussed the possibility of reinstating a 2 percent tax on customers of retail businesses in addition to the existing tax on lodging, bars and restaurants.
The idea, which has been spearheaded by commissioner and city council member David Avanzino, is aimed at generating more revenue for the CAPC to advertise and promote the city, as tourism-related tax revenue has decreased, especially in lodging numbers.
Commissioners analyzed various scenarios and the potential financial impact at the workshop, and decided to further consult with the CAPC’s attorney, the city’s legal counsel and the public before making a decision about the possibility of seeking to place a proposal on the ballot in November’s election. Any changes to the tourism tax must be approved by voters.
“Every indicator that we are seeing, whether it comes from our own staff, or the city, or the state, indicates that tourism dollars are going to decrease,” Avanzino said of the CAPC’s current collections of 3 percent from lodging, restaurants and bars.
Retail businesses, meanwhile, are seeing a significant uptick in business, commissioners said.
“It’s already happening with restaurants and lodging,” Avanzino said of the decrease in revenue from lodging, restaurants and bars. “My concern is that we are here and we are assigned the task of advertising for the entire city. That means all of our attractions, all of the retail shops, all of the restaurants, our bars, our hotels. Right now we are doing that, but only with the money that we get from restaurants, bars and lodging. … It only makes sense to me to bring back what we had years ago, which was the 2 percent for hotels, 2 percent for restaurants, and 2 for retail.”
CAPC director Mike Maloney said retail was included in tourism collections at one time, but that changed to the current format around 2007.
“It was fair and equitable across the board,” Avanzino said of how tourism taxes were collected before the 2007 change. “No one was charged more than the other, and technically [businesses] are not being charged, the tourist is being charged, or the local is being charged, and many of us offset that by offering discounts to locals.
“I just think that for the longevity of the city, and what this commission is tasked to do, which is advertise for the city, we just need to take a closer look at what is going to happen if we stay on the current path with what we have at 3 percent for lodging and restaurants. Personally, everything that I have looked at says that revenue collection is going to continue to decrease.”
Avanzino, commission chair Shira Fouste and commissioner Robert Schmid all own lodging businesses in Eureka Springs. All three agreed business has taken a fairly significant hit in recent months.
“We do not have the business we had two years ago,” Avanzino said. “It has tanked.”
Maloney said a decrease in lodging businesses within city limits has contributed to the decline in tax collections.
“Number one, you cannot spend your way into success,” Maloney said. “Number two, the available inventory of our lodging is decreasing. We have less rooms than we had two years ago. Why is that? Because some owners are converting over to … long-term rentals, and I think our available room count right now is somewhere around 800 approximately, versus what it was in 2016, which was closer to 1,800.
“So, we’re off a lot of available rooms.”
Short-term lodging outside of city limits under platforms such as Airbnb has also contributed, Maloney told commissioners.
“I did take a look at Airbnb, and I looked at the pacing of the rooms in Eureka Springs proper, the city limits, versus the available inventory of the county,” Maloney said. “We are outpacing what we did last year, but the problem is the room count is decreased, whereas the room count outside of the city limits has increased. In other words, there’s more places to stay, but you’ve got to stay out of the city limits, and that is a problematic situation that we run into.
“So again, you can’t spend your way into success. You have to make sure that you have the inventory available to go ahead and accommodate what we want.”
Another thing to keep in mind, Maloney said, was that when the 2 percent tax was put in place around 2006/2007, it didn’t take long for residents to remove the tax on retail businesses.
“When you look at 2007, when we did go into a 2-2-2, or actually did 2 percent on retail, we saw very quickly, less than six months later, that ordinance was repealed,” Maloney said.
Retailers were not happy they “were being forced to pay a tax,” commissioners were told.
“The point being, there was pressure, I think, put upon the city council at that time to go ahead and repeal that tax,” Maloney said. “… I think the theory was the benefactors are the bars, the restaurants and the lodging properties, so let’s go ahead and kill that tax on the retailers and just go ahead to lump another percent back on top of lodging, which was the legal amount to go ahead and do.”
Any change in the tourism tax structure has to start with CAPC approval before moving forward, commissioners discussed.
The key, Avanzino said, is somehow correcting the constant misconceptions of who pays the tourism tax.
“… Ad nauseam, we always say: This is not coming out of my revenue to pay the CAPC,” he said. “It’s coming out of what I had to charge my guests, and what I’m charging my guests is for the ability to advertise for the entire city, and right now I can’t put heads in my beds.
“But, shop XYZ is increasing their income, and 36 percent [increase in state sales tax collections on retail] tells me their income is increasing. Something’s not right. There’s not an even field there. And retailers, I’m wondering back then, if they knew that this is not an expense coming out of their bottom line. I can only imagine what the council would have gone through at that point. It happens all the time with council members getting pressure from stuff like this. …”
Some businesses around 2007 claimed they didn’t sell to tourists, and shouldn’t be part of a tourism tax, Maloney said.
“We had retailers out there that would basically blatantly say: ‘I am not selling to tourists. Yeah, I have a shop on Spring Street, but I don’t sell to tourists, I only sell to the locals.’ ”
Avanzino responded: “I’m sorry, but that’s total bulls**t.”
“That is literally what had happened at that time, going back historically … there were people saying, ‘I don’t sell to tourists. All my business is basically the locals.’ And, you know, there was a whole bunch of those,” Maloney said. “It was a coalition of those people that basically came forth and demanded that, ‘OK, you can’t do that.’
“Now, in the Municipal League book, it says that you can tax tourism-related businesses. So, you have to define what that is, and therein is the rub, if you will. So wherever we go with our discussion, keeping in mind that really is the active ingredient to go ahead and make the bread rise, we have to define what’s a tourism-related business and what is not. Service industry is not, for instance. Professional services. Your doctor, your lawyer, your dentist and so forth, they are not. On the other hand, there are tourism-related businesses because they sell stuff to people that walk up and down the street.”
The increase in popularity of online business, specifically Amazon, was also used as an argument in 2007, with businesses claiming any added taxes to customers would drive business away from shops to online shopping.
“… They’re not going to come here, get a hotel room, and then shop at Amazon,” Avanzino said of the current situation. “They’re going to visit the stores downtown. They’re just going to do it.”
It’s been nearly 20 years since the tourism tax was revamped, commissioner Heather Wilson reminded her colleagues, and much has changed over that time.
“I think that what happened 19 years ago — we’re in 2026 now — is not the case today,” she said.
The next step in the process is getting the two legal experts on the same page, commissioners discussed.
“The last e-mail that we got said the attorneys were in disagreement,” Wilson said of the process to add retail.
The key moving forward is getting the public involved with a town-hall type session, getting input from residents and retail business owners, commissioners agreed.
That input will begin at 5 p.m., Wednesday, April 15, during the CAPC’s next scheduled workshop.
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