Washington State Auditor’s Office Lodging Tax Presented to the City of Bainbridge Island May 11, 2016 Cindy Evans Manager of Legal Affairs Alex Beherndt Assistant Audit Manager

Washington State Auditor’s Office 2  State Auditor’s Office’s Role  Lodging Tax Legislative History  Definitions  Lodging Tax Advisory Committee (LTAC)  What SAO Audits  Current Issues  Use of Lodging Tax Revenue  LTAC issues Introduction

Washington State Auditor’s Office 3  The State Auditor’s Office (SAO) is a post-audit agency and, as such, must exercise caution in providing pre-audit advice to entities we audit. The SAO must maintain its independence and avoid activities that would call into question that independence.  When appropriate, our goal is to provide as much assistance as we can regarding audit related questions.  There are areas where the SAO does not have the authority to audit, such as land use and campaign/election violations. State Auditor’s Office Role

Washington State Auditor’s Office 4  The first lodging tax legislation was passed in Under the initial version of lodging tax only class AA counties could levy and collect a special excise tax of 2% on lodging.  Between 1967 and today, RCW has been amended 17 times.  Major changes were made to lodging tax statutes in the 1997, 2007 and 2013 legislative sessions.  In 1997 legislation added:  Definitions for “acquisition,” “operation,” “tourism promotion,” “tourism-related facility” and “tourist;”  Lodging Tax Advisory Committee provisions; and  Reporting use of revenues to Joint Legislative Audit & Review Committee. Lodging Tax Legislative History

Washington State Auditor’s Office 5  In 2007 legislation added:  Definition of “tourism-related facility” included facilities owned by a nonprofit organization.  RCW Tourism Promotion was added to chapter.  In 2013 legislation impacts:  The amendments to RCW were effective July 1, 2013 and impacted audits conducted in 2014 for city/county fiscal year 2013 audits.  Then current allowed uses of lodging tax funds were preserved except for capital expenditures for tourism-related facilities owned by nonprofits organizations.  The amendments to RCW require municipalities to submit an application to the Lodging tax Advisory Committee.  Municipalities may only expend lodging tax funds for projects on a list submitted to the council/commission by the Advisory Committee.  Sunset date was removed Lodging Tax Legislative History

Washington State Auditor’s Office 6 "Tourism promotion" means activities and expenditures designed to increase tourism, including but not limited to: 1)Advertising, publicizing, or otherwise distributing information for the purpose of attracting and welcoming tourists; 2)Developing strategies to expand tourism; 3)Operating tourism promotion agencies; and 4)Funding marketing of or the operation of special events and festivals designed to attract tourists. RCW (6) Definitions

Washington State Auditor’s Office 7  "Tourism-related facility" means:  Real or tangible personal property with a usable life of three or more years  Owned by a public entity or  Owned by a nonprofit organization 501(c)(3) or 501(c)(6) ( a destination marketing organization, main street organization, lodging association, or chamber of commerce)  And (b) used to support tourism, performing arts, or to accommodate tourist activities. RCW (7) Definitions

Washington State Auditor’s Office 8 "Tourism" is defined as: Economic activity resulting from tourists, which may include sales of overnight lodging, meals, tours, gifts, or souvenirs. RCW (5) As noted in an earlier slide, the definition of Tourism was added in 1997 and it has not been amended by the legislature. Definitions

Washington State Auditor’s Office 9 This committee must have at least five members, appointed by the legislative body of the municipality, including:  At least two representatives of businesses that are required to collect the hotel-motel tax.  Two people who are involved in activities that are authorized to be funded by this tax.  One elected official of the municipality who serves as chair of the committee.  A city's committee may include a non-voting county elected official.  A county’s committee may include a non-voting city elected official. Lodging Tax Advisory Committee

Washington State Auditor’s Office 10  The number of committee members from organizations representing the hotels and motels and the number from organizations involved in activities that can be funded must be equal.  Organizations representing hotels and motels and organization involved in activities that can be funded by this tax may recommend people for membership.  The appointing authority shall review the membership of the committee annually. Lodging Tax Advisory Committee

Washington State Auditor’s Office 11  Requests for funding go to the LTAC.  LTAC submits a list of acceptable applicants and recommended amounts of funding to council/commission.  Municipality may choose to fund only from list and the recommend amounts. The council can fund all the recommendations, none of the recommendations or some of the recommendations made by the LTAC. Lodging Tax Advisory Committee

Washington State Auditor’s Office 12 The State Auditor’s Office regularly evaluates the use of restricted funds expended by entities, which may include lodging tax revenues. The evaluation may -  Determine whether the entity is required to have a lodging tax advisory committee (LTAC) and if the committee is in place and the membership is consistent with RCW ;  Review the projects approved by the LTAC funding and the actual expenditures compliance with RCW ; RCW , and RCW ;  Verify lodging tax revenues and expenditures are accounted for in a separate fund; and  Scan expenditures for unusual expenditures with special attention on those occurring after July 1, Our Audit Approach

Washington State Auditor’s Office 13  Citizen Hotline Submissions: From October through May 3, 2016 there have been 15 citizen hotlines that used the term “lodging tax.”  Auditor Helpdesk Questions: from May 2011 – through May 3, 2016 there have been approximately 36 audit helpdesk submissions searching using the term “Lodging Tax.”  Signage  Employees  Sunset questions  Municipalities applying to use funds  Porta-pottys/Bathrooms  Equipment  Stay and Play (golf) Lodging Tax Issues

Washington State Auditor’s Office 14 Questions?

Washington State Auditor’s Office 15 Cindy Evans Manager of Legal Affairs (360) Carol Ehlinger Audit Manager Team Port Orchard (360) Contact Information