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Rude awakening as state disallows bed-tax increase

STORY BY STEVEN M. THOMAS (Week of October 5, 2023)

Indian River County got a rude surprise two weeks ago when the state of Florida informed county officials – at the last possible moment – that a planned bed tax increase set to go into effect last Sunday was prohibited by state law.

The 1-cent increase, which was intended mainly for beach repair and replenishment on the barrier island, would have upped the county bed tax to 5 cents and raised more than $1 million in additional revenue for beach and dune restoration.

Instead, the bed tax here will remain at 4 cents – at least until the November 2024 general election – depriving the county of substantial revenue it could have used to help repair 32963 beaches, long stretches of which are classified by the state has critically eroded.

The late-breaking news, revealed in dramatic fashion by County Administrator John Titkanich, Jr. at a Sept. 13 hearing, was delivered to Vero by the state just days before the 2023-24 budget was due to be approved and adopted by the county commission.

“I would like to note that yesterday, the staff was notified by the (state) Department of Revenue that the county would not be able to increase its tourist development tax due to a recent legislative change that became effective July 1,” Titkanich told commissioners.

“I will add that our staff shared our proposed  ordinance with the department of revenue in July but received no comments on this new requirement.

“With the passage of House Bill 7063, an ordinance levying or imposing a tax, and in our case increasing a tax, is subject to being approved in a referendum held during a general election.”

Not only did the Sept. 12 notification from the state that pulled the plug on the county’s plans come very late in the budgeting process, but it contradicted a letter the Department of Revenue had sent to county budget director Kristin Daniels earlier in September.

“Thank you for informing the Florida Department of Revenue of the adoption of Ordinance No. 2023-012 by the Indian River County Board of County Commissioners,” the letter said. “This ordinance will impose an additional 1% Tourist Development Tax within Indian River County beginning on October 1, 2023 ... This additional 1% Tourist Development tax will remain in effect until repealed by the Board of County Commissioners. This brings your rate up to 5% total.”

The county naturally took that as a green light. But it was followed by the Sept. 12 notification mentioned by Titkanich, and by a second letter that arrived on Sept. 21, after the budget process was complete.

According to the second letter, the ordinance “to impose an additional 1% Tourist Development Tax within Indian River County beginning on October 1, 2023 ... should be approved by referendum; therefore, the adoption [of the ordinance] by Indian River County Board of County Commissioners is invalid. The Indian River County current Tourist Development Tax rate will remain at 4% until approve the change by referendum.”

“We had already advertised the budget and sent notifications of the tax increase to people we collect the tax from [before hearing from the state],” Daniels told Vero Beach 32963. Those people included hotel and motel proprietors, Airbnb property owners and island real estate agents who handle seasonal rentals.

“Due to this new legislation we now must put any tax increase on the ballot in a general election – not just any election, but a general election!” Daniels added.

“More notice would have been nice,” said County Commissioner and Tourism Development Council Chairman Joe Flescher. “I was really disappointed and taken aback by how this was handled.”

Island brokers were taken aback, too.

“We had already sent out letters to all our seasonal renters and adjusted all the leases [to include the new tax],” said Marsha Sherry, broker at The Moorings Realty Sales Co., which manages some 60 rental properties. “We had to redo everything and apologize to our renters for the confusion. It caused a lot of extra work and expense in my rental department.”

Looking at the timeline of the bill that snatched taxing authority from Florida counties where it has long resided, it’s hard to understand why the Department of Revenue did not alert county officials earlier.

House bill 7063 was passed by both branches of the Florida state legislature on May 5, signed by the governor on May 25, and went into effect on July 1.  So, when Indian River County sent its proposed tax increase ordinance to Tallahassee in mid-July, the new law was already in effect.

Why did the state wait till the last moment to communicate with the county?

A spokesperson for the Department of Revenue told Vero Beach 32963: “We have no legal obligation to inform the county that their ordinance was passed after the new law went into effect.”

But that doesn’t explain the two contradictory letters from the Department of Revenue quoted above.

“One million dollars would not have changed what we can do for our beaches very much by itself,” Flescher said. “But used as leverage to get matching state and federal grants, it would’ve amounted to something and made a difference.”

Flescher liked the bed-tax increase as a source of additional revenue for beaches and tourism development since it would have been funded by tourists and seasonal residents who rent for less than six months, instead of full-time residents.

Island beaches are the county’s biggest tourist draw and charging tourists 1 percent more each night to help keep those beaches in good repair made sense to him. Along with the tax increase, the county was set to put into effect a new formula for how bed-tax money is distributed that allocated a higher percentage of the total bed tax to beach restoration.

Now as a result of the state’s action, the 4-cent tax remains in place, along with the old formula for dividing up the money, which deprives the beach repair fund of much needed cash.

“The much-anticipated increase is now a bust,” Flescher said. “Now we will have to go through the whole process again, with meetings and public hearings.

They county can’t attempt to raise the bed tax again until the 2024 general election, when it would have to be approved by voters in a referendum.