The City of Lake City has penalized six local lodging businesses after they refused
to turn over city lodging tax collections last month.
One of the businesses, Red Gables Inn, has paid the penalty but thus far five others
have not. They include Frog and Bear Bed and Breakfast, John Hall's Alaska, Willows on
the River, the Sunset Motel and Villas on Pepin.
The six businesses refused to turn over $12,000 in lodging tax funds from the third
fiscal quarter to the city, as required under the city lodging tax ordinance.
Instead, the businesses held the money in an escrow account pending a change they
want made in the ordinance.
Now the lodgers want the city to give them full responsibility for handling the
The city notified the businesses by a demand letter delivered by local policy that
they were in violation of the lodging tax law and were required to pay the $12,000 plus
10 percent, $1,200 in penalties.
A 3 percent tax on lodging is collected by all hotels, motels, bed and breakfasts and
other lodging establishments under the ordinance. The businesses pay the tax quarterly to
the city. The funds are used to promote tourism locally.
Greg Marn, owner of the Sunset Motel and a member of the Lake City Lodging
Association, told the City Council at its Oct. 13 meeting that the lodgers planned to
propose a change in the lodging tax ordinance. He said the lodgers planned to hold the
tax collections for July, August and September until the proposed ordinance change was
acted on by the council.
Marn was told then that holding the tax funds rather than paying them on the Oct.
20 deadline would be a violation of the city ordinance and a criminal offense.
When the quarterly tax collections were not turned over by Oct. 20, the city took
action. The demand letter from the city informed the lodgers the tax collections, plus a
$12,000 penalty, were due.
The lodging association turned the $12,000 over to the city but as of Wednesday
only one of the six businesses affected had paid the penalty, which averages $200 per
business, based on the volume of tax each business collected.
On Monday night, Marne and Larry Nielsen, who manages Willows on the River
and Villas on Pepin, requested that the council change the ordinance so that lodging tax
funds collected by the city be turned over to the lodgers rather than to the Chamber of
Commerce, as the ordinance spells out.
On a motion from council Member Ray St. Martin and approved on a 5-1 vote, the
council instructed the staff to draft the ordinance amendment for consideration by the
council at its Dec. 9 meeting.
St. Martin and Council members Dawn Heitman, Keith Draz, Matt Powers and
Mary Lou Waltman voted to have the ordinance amendment drafterd.
Mayor Katie Himanga voted against considering the change. Council Member Joel
Beckman was not at the meeting until later. As Dakota County Auditor and Treasurer, he
was tied up with the U.S. Senate election recount there.
The proposed ordinance change will be brought back to the council at its Dec. 9
meeting for a first reading.
Since the council does not plan to hold a second meeting in December, the
ordinance change would not be acted on before the first meeting in January, unless a
special meeting is held in December.
The makeup of the council will be different starting in January. Mayor Himanga
and Council Members Dawn Heitman and Keith Draz will be off the council. The new
mayor, Jerry Dunbar, and new council members Andru Peters and Mark Spence will be
on the council.
The late payment of the third quarter taxes and the outstanding penalties were not
discussed at Monday night’s council meeting.
The city initiated the local lodging tax in 1997 the raise funds to promote tourism in
Lake City. The Chamber of Commerce agreed to be the fiscal agent to handle the funds.
A Tourism Bureau was created, made up of lodgers and Chamber members, to decide
how the funds would be used.
About $30,000 is collected through the tax each year.
Last summer the chamber changed its bylaws to set term limits on Tourism Bureau
membership and create turnover, which resulted in some long-term bureau members
being replaced. Nielsen was elected chair of the restructured Tourism Bureau.
Marn told the council in October that the chamber bylaw change left lodging
association members feeling the needs of their association were not being addressed.