Tourism is a double-edged sword, says Sen. Dave Fern. 

The Whitefish Democrat has decades of experience living in one of the state’s top tourism destinations to back up that statement. 

More than half the economy of towns such as Whitefish, a gateway community to Glacier National Park and home to Whitefish Mountain Resort, stands on the backs of tourism and recreation-based businesses. 

The town of roughly 9,000 people welcomes around 1 million visitors each year, according to the University of Montana Institute of Tourism and Recreation Research, and those visitors have an impact on local infrastructures, trails, and rising property values — all things a local resort tax helps address. 

Fern, a Whitefish Democrat, said that West Yellowstone was the first community in the state to implement a local-option sales tax in the 1980s. Now, 13 communities in the state have a “resort” designation and leverage the resort tax.   

“As tourism and visitation became more and more an essential part of the economy, lots of smaller communities — both unincorporated areas and municipalities — were adversely impacted by the effects of tourism and visitation,” Fern told the Senate Taxation committee on Wednesday. “You take some communities with a limited tax base and increasing infrastructure needs because of tourism, and you come into a collision.”

Fern is sponsoring Senate Bill 172, which would amend the current resort tax law to increase the population threshold for communities that can obtain a “resort” designation from the state, and allow an additional 1% tax to be collected and used for workforce housing. 

“I think what is important is that the state recognizes that resort communities and areas face an extra hardship caused by tourism, and they need assistance,” he said. 

Currently, cities with less than 5,500 residents and unincorporated areas with fewer than 2,500 residents that derive at least half their economy from visitor-based businesses can opt to enact a resort tax — with voter approval — and can extend the tax even if the population grows past the initial limits. 

Fern’s bill would raise the cap for cities to enact the tax to 10,000 residents, and for unincorporated areas to 3,500, saying he had Whitefish in mind as an example town. 

“Over the years, Whitefish, in particular, has doubled, or nearly doubled in population,” Fern said. “And yet we haven’t grown ourselves out of the problem, the problem being increased visitation that has a continued impact on the need for infrastructure.” 

The tax, capped at 3%, applies to sales of non-essential “luxury” goods and services sold by food, lodging and destination-recreation businesses within a resort area, while exempting a long list of “necessities of life,” with the goal of maximizing tourism dollars and minimizing impacts on local residents.

At least 5% of resort tax revenue must be used to alleviate local property taxes, with the rest determined by the local governing body. 

Communities can also leverage an additional 1% to be used exclusively for infrastructure, but that addition is capped for cities below the population limits. 

Residents of Whitefish first passed the resort tax in 1995, and reauthorized it for 20 more years in 2021, when city officials said that annual tax revenue was around $4 million. Currently, the city of Whitefish allocates 25% of revenue to property tax relief, 48% to infrastructure projects, 10% to bike paths and parks, 10% to affordable housing projects and 2% to the local Whitefish Trail System. 

Fern’s bill also focuses on workforce housing by removing the population cap for leveraging the additional 1% tax and allowing it to be used for infrastructure or affordable housing projects. 

While new taxes are often perceived as unpopular, Fern pointed out to committee members that each time the Whitefish tax was put to voters, it gained support. The 2021 vote to extend the tax passed with 89% of the vote, while a recent vote to add a tax to the Big Mountain Resort District — comprising Whitefish Mountain Resort, which sits outside city limits — also passed with more than 80% support. 

“I think that is because you can see progress. You see infrastructure changes, you see significant improvements in roads, side walks, shared use paths, that sort of thing,” Fern said. “And you get property tax relief, so that’s why it’s been very very popular.”

No one opposed SB 172 during the committee hearing, while a representative from Shelter Whitefish, a nonprofit focused on housing inequality, testified in support.