A knotty local recreation tax — Wacky Tax Wednesday

Charlemont, Massachusetts, describes itself as “a hilltown community of about 1,300 residents … home to working farms and cottage industries as well as many recreational opportunities from whitewater rafting to downhill skiing.” It’s a telling description that helps explain a proposed tax on commercial recreation services in the town.

House Bill 2713 would authorize Charlemont to assess a 3% tax on the ticket price for guided or unguided commercial recreational activities originating or located in the town of Charlemont. Activities subject to the tax would include mountain biking, mountain coaster rides, river tubing, skiing, whitewater kayaking and rafting, and ziplining. The 3% tax would be in addition to any sales tax imposed on such transactions.

In and of itself, a tax on recreational activities isn’t particularly noteworthy. What stands out with this proposed tax is that it would be administered by the town of Charlemont, the way many lodging taxes are. “While this isn’t a tax on lodging,” observes Scott Peterson, VP of Government Relations at Avalara, “this is an example of the type of legislation that, if enacted, seriously increases complexity.”

Lodging and occupancy taxes are notoriously complex because they’re levied and administered by thousands of local governments. A lodging operator or online travel agency with properties in 500 jurisdictions could need to file returns and remit taxes to 500 different local tax authorities as well as with state departments of revenue. It’s enormously burdensome.

Yet that’s not the case in Massachusetts. The Massachusetts Department of Revenue handles nearly all taxes in the state, including local occupancy taxes. In fact, local governments in Massachusetts typically only administer local property taxes.

So, the proposed tax in Charlemont would be an outlier.

Does the local option recreation tax stand a chance?

Maybe, but similar proposals failed in the past.

Introduced in January 2017, House Bill 2623 sought to impose a 3% tax on commercial recreational activities in Charlemont. As initially proposed, the tax would have been remitted to the Massachusetts Department of Revenue “at the same time in the same manner as the sales tax.” However, an amendment submitted in March 2018 changed the tax administrator to “the collector for the town of Charlemont.” The bill was favorably received but ultimately stalled.

A similar fate befell Senate Bill 1339, introduced in March 2021. This bill also sought a 3% tax on commercial recreational activities in Charlemont. Like the amended version of HB 2623, the tax was to be remitted “to the collector for the town of Charlemont” rather than the state. This bill was also favorably received, but nothing happened after it was ordered to a third reading.

Charlemont reportedly pursued a local recreation tax around 2005 as well.

Why so intent on a local recreation tax? “It’s very hard for a town of 1,000 people to pay its bills,” Charlemont Selectman Toby Gould told the Greenfield Recorder in 2016. He said a tax on recreation activities “could be a sustainable, ongoing new source of revenue.”

And perhaps it could. But it’s not quite that simple.

The home-rule conundrum

In addition to being like a local lodging tax, the proposed local tax on recreation activities would be similar to a local sales tax — and the only states that allow local governments to levy and administer local sales taxes are home-rule states.

Though home-rule authority was granted to cities and towns in Massachusetts in 1966, the Massachusetts Department of Revenue reminds that the state has the “sole authority” to levy, assess, and collect taxes. What power municipalities do have over taxes are “wholly a function of specific grants of authority from the state.” This is why Charlemont, which has approved the local recreation tax, needs the Massachusetts General Assembly to pass a law allowing the tax.

Local governments in the Bay State also have the right to assess certain fees, and the line between a “fee” and a “tax” is often unclear. “Confusion over the line between permissible administrative fees and impermissible municipal taxation has led some municipalities to alter their intended course of conduct,” observes a report on home rule. Such confusion prevented one town from even trying to raise the admissions fee to the local town fair. “Fears that the increase in the ticket price would be construed as an impermissible ‘tax’ compelled the town to keep the ticket price the way it was.”

Should HB 2713 eventually become law, Charlemont wouldn’t be the only New England town to tax recreational activities. The Vermont sales tax (including the local option sales tax, where in effect) applies to ski lift tickets and similar amusement charges (e.g., fees for bicycling, canoeing, kayaking, snowmobiling, and the like). Yet Maine doesn’t tax ski lift tickets. And a proposal to implement a “ski tax” in New Hampshire, which doesn’t have a statewide sales tax, was nixed.

How would Charlemont’s local recreation tax work?

Vendors would be required to collect the tax from purchasers then remit it to the town of Charlemont no later than the twentieth day of each month. The tax returns would have to include the vendor’s taxpayer identification number as well as their total sales, gross sales of applicable services, the amount of tax due for the preceding month, and “any other information the collector determines is reasonably necessary to administer and collect the tax.”

Late returns would be subject to a penalty of 1% of the tax due, and failure to pay the tax by the due date would result in a penalty of .5% of the unpaid tax. Additional penalties could also apply. The board of assessors would have the right to examine books, papers, records, and other data used to file a tax return for three years or designate a private auditor to inspect such materials on its behalf. The text of the bill provides additional details.

This proposed local option recreation tax certainly isn’t the wackiest tax policy I’ve seen, but it wonderfully illustrates how layered and complex a seemingly straightforward tax can be.

Find more tax news at the Avalara Tax Desk.

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