Businesses bristle at tax hike proposal

PRESCOTT VALLEY - Town government officials have proposed increasing taxes for restaurants, bars and hotels/motels to raise an estimated $250,000 in the upcoming fiscal year to offset a deficit.

However, a number of owners of the establishments said sales taxes are high enough, with some fearing a tax increase could backfire by discouraging customers from spending money.

"Is it worth trying to make an extra $250,000 and risk potentially losing several million dollars in cash injection into the community?" Tony Caputo, co-owner with wife Billie of Giovanni's Pizza & Pasta on Valley Road, asked.

Caputo, who has owned the restaurant about three years, questioned the timing of raising the town's sales tax rate from 2.33 to 3 percent for restaurants, bars and hotels "in our very fragile tourist market."

The proposal, which would go into effect Sept. 1 if the Town Council adopts it June 24, comes days after the 1 percent, three-year state sales tax went into effect from voter approval of Proposition 100 May 18. The town also collects a bed tax of 2.33 percent from overnight accommodations, and that would increase to 3 percent as well if the Town Council were to approve the recommendations from the Management Services Department. The town collected about $1.1 million from the three business categories in the 2008-2009 fiscal year, Management Services Director Bill Kauppi said.

If the council were to adopt the proposal, the overall sales tax rate would increase to 10.35 percent for restaurants and bars, and the rate for motels would reach 13.325 percent, according to a report from Management Services. Prescott Valley is home to 56 restaurants without liquor licenses, 23 restaurants with liquor licenses, eight stand-alone bars and six hotels/motels, according to the Town Clerk's office.

"It includes if you go into a service station mini mart and you buy a hot dog that is already cooked," Sarah Herzog, sales tax auditor, told the council during the work/study meeting Thursday evening.

The proposal emerged in a discussion on raising revenues during a council retreat several months ago, Kauppi said before the meeting.

Council members raised questions at the meeting but seemed supportive.

Vice Mayor Lora Lee Nye referred to a study by the Northern Arizona Council of Governments that claimed an increase in bed taxes would have a negligible effect on travelers.

Informed after the meeting about opposition to the tax proposal, Nye said, "When they (business owners) find out it does not have an effect, they will be comfortable."

The business community disagrees.

Lodgers at the Super 8 are already complaining about the sales tax from Proposition 100, said Kevin Bhakta, who manages the 57-room motel on Highway 69 with wife Jody.

"People always look at it as a negative," Bhakta said. "Anytime the tax is raised they think we are raising the room rent."

He said the recession has caused close to a 50 percent drop in business.

If town officials keep raising taxes, "nobody is going to go out at all, and it is going to kill the businesses," said Rob Wells, owner of Dippin' Dots, a fast-food establishment in the Entertainment District.

The tax could discourage spending, said Cathi Fitzpatrick, co-owner of Pony Espresso on Robert Road with husband Tim. She added she understands why town officials want to increase taxes.

Customer Ciera Soriano, a schoolteacher, agreed, saying, "I would not be very happy, and I probably would not spend as much money. I would cut back a lot on restaurants."

The tax proposal drew opposition from Christina Maddox, who patronized Dippin' Dots Thursday with her two children.

"No, I don't want anymore sales taxes because going out to eat is a small pleasure you get to do with your family," she said.