Bethel proposals would forgive uncollected hotel sales tax and cut the 12% rate to 6%

Bethel City Manager Lori Strickler has proposed forgiving a 12% sales tax that hotels and short-term rentals never collected from guests. A second ordinance she sponsored would cut that tax to 6%. Both were on the City Council's Nov. 10 consent agenda for introduction, and a public hearing is set for Dec. 15.

City code puts two separate 12% taxes on lodging: a sales tax paid by the guest and a business tax on the operator's gross receipts from renting rooms. The forgiveness ordinance says the city "recently learned" that operators have been paying the business tax but never collecting the sales tax. The rate-cut ordinance says the city has historically collected only the business tax.

City Attorney Libby Bakalar concluded in a Nov. 3 memo to Strickler that both taxes apply, though she wrote that "the code could be clearer on this point." In her example, a guest who books three nights at $300 a night owes $108 in sales tax, which the hotel holds for the city. "That money never belongs to the operator," she wrote.

The first ordinance would let the city manager, with the council's agreement, waive the uncollected sales tax, interest and penalties on stays before Jan. 1, 2027. City code allows that when the manager finds, and the city attorney confirms, that a substantial share of a class of sellers never collected a tax. It does not cover sales tax collected from guests but never turned over to the city, the business tax or refunds of tax already paid. The ordinance says collecting the back tax "would create an unexpected financial obligation for affected businesses."

Starting Jan. 1, 2027, operators would have to collect "the applicable twelve percent" from guests. The ordinance does not say how much tax went uncollected or how many operators are affected.

The second ordinance would drop lodging to the city's general 6% sales tax when adopted, lowering the combined tax on a room from 24% to 18%. Neither ordinance addresses the other, so it is unclear which rate would apply after Jan. 1 if both pass.

Through Oct. 31, four months into the fiscal year, the city had collected $134,064 in lodging tax against a $375,000 budget.

The Dec. 15 hearing begins at 6:30 pm, and written comment is due 24 hours before the meeting.