Report : CS-20-001

Telephone (905) 468-3266
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1593 Four Mile Creek Road
P.O. Box 100
Virgil, Ontario
L0S 1T0

		Submitted on:	December 16, 2019
Report:	CS-20-001

Report To:	Corporate Services Advisory Committee
Subject:	Municipal Accommodation Tax (MAT)

1. RECOMMENDATION
It is respectfully recommended that:
1.1 the Council of The Corporation of the Town of Niagara-on-the-Lake commit, in principle, to implement a Municipal Accommodation Tax (MAT) of no more than 4%, or equivalent, to be applied to transient accommodation; and

1.2 Staff be directed to engage the MAT Committee and report to Council on the implementation and administration of a MAT within the Town of Niagara-on-the-Lake, to be effective June 1, 2020; and

1.3 the draft Terms of Reference for the Municipal Accommodation Tax Committee be approved; and

1.4 Staff be directed to prepare a draft Service Agreement between The Corporation of the Town of Niagara-on-the-Lake and the Town's designated 'Tourism Entity' and forwarded to the Town's Solicitor for review; and

1.5 Staff be directed to create a Municipal Accommodation Tax Reserve, and draft a Municipal Accommodation Reserve Policy, with funds to be used to support tourism infrastructure, and tourism related operating expenses; and

1.6 Staff be directed to issue a Request for Proposals (RFP) to select a vendor to work in cooperation with individual accommodators, the designated 'Tourism Entity', and Town’s Corporate Services Department to establish and implement all the requisite collection and remittance services required to support the Municipal Accommodation program; and

1.7 Staff be directed to draft a by-law and necessary agreements to be presented to Council to establish the Municipal Accommodation Tax.

2. PURPOSE / PROPOSAL
The purpose of this report is to provide Council with an update regarding the on-going discussions with the MAT Committee and to provide Council with recommendations from Staff. Staff are looking to affirm Council's commitment to implement a MAT in order for proper consultation with the MAT Committee to take place and to prepare the necessary by-laws, agreements, and requests for proposals involved prior to the implementation and administration of such a tax.

3. BACKGROUND
On November 23, 2017, the Province of Ontario issued the Transient Accommodation Regulation 435/17, which came into force December 1, 2017 and provides the necessary provisions for municipalities across Ontario to implement a Municipal Accommodation Tax (MAT). The 2017 Ontario Budget, A Stronger, Healthier Ontario, granted authority to Ontario municipalities to impose a mandatory MAT, which would apply to hotels, motels, bed & breakfasts, participants operating a common platform for individual accommodators, and all other accommodators renting rooms for a period of under 28 days.

In January 2018, Council considered Report CS-18-002 Municipal Accommodation Tax (MAT)(attached as Appendix I). The previous Council received the report and took no further action at that time.

On April 8, 2019 Council appointed a working group consisting of staff and Councillors to review the legislation, previous reports, and any additional information made available including The Economic Impact of Spending report in Niagara Canada in 2018 generated by the Ontario Ministry of Tourism, Culture and Sport, and to engage stakeholders in the conversation and return to Council with recommendations to assist the committee in making an informed and objective decision regarding this matter.

On September 16, 2019 Council appointed two members of Council and industry stakeholders to a Municipal Accommodation Tax Committee. The Committee has met three times since and have reviewed materials provided by staff and from external studies. A summary of the discussion and concerns raised during these meetings have been provided in the section below.

4. DISCUSSION / ANALYSIS
The MAT is a new revenue tool that Ontario municipalities can use to further promote tourism as an economic driver within their city boundaries and the province as a whole. A number of municipalities have now implemented or are in the process of implementing a municipal accommodation tax. Such municipalities include (see appendix II for more details):

City of Barrie	City of Mississauga	City of Toronto
City of Belleville	City of Niagara Falls	City of Vaughn
City of Brockville	City of North Bay	City of Windsor
City of Cambridge	City of Orillia	The Municipality of Sioux Lookout
City of Cornwall	City of Ottawa	Town of Cochrance
City of Dryden	City of Peterborough	Town of Fort Frances
City of Kenora	City of Quinte-West	Town of Gananoque
City of Kitchener	City of Sault Ste. Marie	Town of Marathon
City of Kingston	City of Sudbuty	Town of Oakville
City of London	City of Thunder Bay	Town of Huntsville
City of Markham	City of Timmins

In many communities, the MAT will look to replace existing programs known as the Destination Marketing Fees (DMF) which have been collected through Destination Marketing Programs (DMPs), such as Ottawa, Toronto, Kingston, and Niagara Falls. These industry led initiatives have existed successfully and have been recognized by many accommodation and tourism operators as an effective means of supporting regional tourism marketing development. Municipalities that had existing DMF and DMP have identified that they intend on implementing this tax to replace the existing DMF or DMP programs. All municipalities that adopt the MAT and that have an existing Destination Marketing Fee (DMF) program in place would be required to share their MAT revenue with the appropriate not-for-profit tourism organization in an amount that matches the total revenue generated by the existing DMF program.

Revenue Sharing with Tourism Entity
For local municipalities where such a program does not currently exist, such as Niagara-on-the-Lake, at least 50% of the MAT revenue would be shared with the respective eligible tourism entity, excluding costs to administer the tax. The regulations define an eligible tourism entity as "a non-profit entity whose mandate includes the promotion of tourism in Ontario or in a municipality". As there is currently no DMF collected within the Town, implementation of this tax would result in the establishment of a new program which requires the careful consideration and development of an enabling by-law and administrative model.

Currently, the Town has a Fee for Service Agreement (Appendix II) with the Niagara-on-the-Lake Chamber of Commerce which indicates that the Chamber, on behalf of the Town, shall provide services including but not limited to visitor services, tourism marketing and promotion programs. This agreement recognizes the Chamber of Commerce as the Destination Marketing Organization (DMO) for the Town. The Chamber of Commerce has also previously administered destination marketing programs for the promotion of tourism in Niagara-on-the-Lake.

Under the Fee for Service Agreement it states that the Chamber will receive funds from the Town in an amount determined annually by the Town's Discretionary Grant Committee. However, in 2017 Council approved during budget deliberations that the Chamber's total requests be considered line items in the operating budget, not as part of the Discretionary Grant funding, subject to Council approval. It was also recommended that a request be put in front of Council at budget deliberation time, either with a presentation or letter from the Chamber, to identify what funds they would be asking for each budget year and what those funds are being used for. Since 2018 the Town has provided the Chamber $118,000 which has been funded through parking reserves.

As a result of these changes, it is expected that the Fee for Service Agreement between the Town and the Chamber of Commerce will need to be reviewed in the immediate future and it is the recommendation of staff that Council use this opportunity to review the potential of replacing the existing Fee for Service Agreement with the Chamber with an agreement under the MAT. The MAT funding could be used to either supplement or replace the existing funding model between the Niagara-on-the-Lake Chamber of Commerce and the Town.

Use of Funds
It is anticipated that revenue from the MAT program could be variable from year to year, but current projections are shown anywhere from $2,000,000 - $3,000,000 annually in overall funds generated from the Tax (before administrative fees and disbursements to tourism entity). This calculation is based on an assumption of 50% occupancy and an average room rate of $175 per night.

The legislation is clear that the portion of the funds allocated to the Eligible Tourism Entity shall be used for the exclusive purpose of promoting tourism. There are no clear restrictions on how the Municipal funds are to be used. However, the funds be allocated to the Municipality are expected to be transferred to Municipal Accommodation Tax Reserve fund and governed by a reserve policy. It is important that the municipal share of funds raised through the Municipal Accommodation Tax be segregated and only used for approved municipal purposes to demonstrate transparency and accountability to the hospitality industry.

Historically, the taxpayer has supported budgets which fund improvements to tourism infrastructure and related operating expenses such as the public washrooms, park fixtures, planters, flower bed, hanging baskets, etc. It is anticipated that if approved, the use of funds from the MAT, dedicated financial support raised through tourism will be available to assist in funding new, existing, and improved tourism infrastructure that will generate additional economic benefits without impacting the Town's tax levy. At least in the short term, staff recommends that the Town's 50% portion of revenues from the MAT be placed in a reserve fund that could be called a Municipal Accommodation Tax Reserve Fund which would be used for funding tourism related infrastructure projects and events, subject to approval by Council in accordance with a the proposed Municipal Accommodation Tax Reserve Policy. Staff would also recommend that the funds generated to be disbursed to the eligible 'Tourism Entity' also he held in trust until an agreement can be formalized

The following list provides examples of potential items to be included, but not limited to, in such a reserve policy as identified above:

Create, repair, maintain biking/hiking/walking trails
Add and maintain, public spaces, washrooms, water fountains, benches etc
Capital investment in new tourism attractions or facilities (i.e. visitor centre)
Capital investments in road repairs and resurfacing
Improvements or additions to sidewalks
Community improvement programs
Charging stations for Electric vehicles
Bicycle racks
Better signage and way finding on roads and trails
Improvements to natural assets
Funding for special events/ sporting events
Funding for programs that preserve our heritage assets

Municipal Accommodation Committee
During the three meetings of the MAT committee there has been constructive discussion that has taken place. The Committee was not able to come to a consensus as to whether the MAT is the best tool to support a destination marketing program. The following list is a summary of the major concerns from members of the industry that sat on the committee:

Competitive Disadvantage

Concerns were raised by representatives of the industry that the implementation of a tax on accommodation would provide a significant disadvantage to operators in Niagara-on-the-Lake. More specifically, it makes it more difficult to attract larger corporate or mass booking opportunities.
Should a tax be considered, the Committee suggests that Council include exemptions in the By-law for larger corporate bookings.
The Committee recognizes that many other municipalities have chosen to implement an accommodation tax. Members of the industry feel that the absence of an accommodation tax allows accommodation providers to provide a more competitive price and therefore attract more visitors, specifically larger corporate bookings.

Impact to Net Funding

The Committee recognized that at least 50% of the funds received from the accommodation tax would be remitted to a NOTL tourism entity, however this may have ramifications regarding the existing provincial funding currently provided, and depending on the cut backs, the net increase for overall funding to a tourism entity may not be as significant.

Accommodation Tax Used as Budget Crutch

Members of the Committee raised concerns that Council may see the implementation of an accommodation tax as a solution to budget constraints
Members of the Committee believed that the introduction of an accommodation tax should be driven by the needs of the tourism sector, and not used as a solution to a difficult budget cycle.

Niagara-on-the-Lake’s Current Tourism Marketing Efforts

Members of the Committee felt that Niagara-on-the-Lake does not have an issue in terms of marketing the area as a destination.
There needs to be very clear identification on what the issues are with the existing model in NOTL and how an accommodation tax could be used to solve these issues.

Conclusions

Majority of Members are not prepared to support a tax at this point in time but are willing and open to continue to work with Council and staff on the implementation.
Members agree that there are benefits to a tourism management body and a need for a stronger tourism strategy, but they are not convinced at this time that an accommodation tax is a means to this end.

Staff are recommending that the Committee continue to work under the revised Terms of Reference, attached as Appendix III. The Committee had suggested that members may be better guided through a formal Terms of Reference and mandate. The industry members were committed to work with staff and Council in the future, but were clear that they did not support a Municipal Accommodation Tax.

5. STRATEGIC PLAN

Find innovative ways to protect our heritage, agriculture and other assets that ensure our community remains distinctive and sustainable.

Council's Strategic Plan identifies the above as strategic priority. Further, it was identified that tactics to achieve this strategy would be that Council ensure that a tourism strategy is developed that addresses tourism congestion while enhancing our wine, culinary, arts, and other core assets. This additional funding could provide Council with the adequate resources to complete a comprehensive tourism strategy for Niagara-on-the-Lake.

6. OPTIONS

6.1 Consider charging a flat rate

Almost all municipalities have opted to charge the MAT at 4% however certain municipalities such as Niagara Falls have opted to implement the tax based on a flat rate fee of $2. A flat rate may provide greater ease to operators when collecting and calculating the tax.

6.2 Provide exemptions for short term rental operators

The legislation currently lists a number of mandatory exemptions for the tax. Council has the ability to allow for greater exemptions, for example some municipalities have opted to exempt short term rental operators at this time and only charge hotel, motels and inns.

6.3 Multiple or alternative eligible tourism entities

There are no restrictions on the number of tourism entities Council may wish to provide funds to a number of Tourism entities. They may also wish to review who will act as the destination marketing organization. At this time the Chamber is recognized as the destination marketing organization.

7. FINANCIAL IMPLICATIONS
It is anticipated that revenue from the MAT program could be variable from year to year, but current projections are shown anywhere from $2,000,000 - $3,000,000 of annual tax revenue (before administrative fees and disbursements to tourism entity). The calculation below is based on an assumption of 50 percent occupancy and an average room rate of $175 per night.

Accommodation Type	Number of Rooms	Approximate Annual Revenue
Short Term Rentals	420	$538,020
Cottage Rentals	373	$477,813
Villas	127	$162,687
Country Inns	84	$107,604
Vacation Apartments	17	$21,777
Hotels	1,262	$1,616,622
Total Tax Revenue		$2,924,523
Est. 10% Administrative Fee		$292,452
Balance		$2,632,071
Total Revenue for Municipality/DMO		$1,316,035

It is estimated that based on seven months of the tax being implemented that municipal revenues could range from $400,000 - $800,000. In order to be conservative staff are recommending that no more than $400,000 could be allocated in the 2020 budget, subject to Council approval.

Staff have reviewed the budget and determined that $630,000 exists in the draft 2020 Operating Budget that directly supports tourism related initiatives. It is important to note if any MAT funds are allocated to operating segments in the budget that they are assumed to be ongoing commitments for future budget years, reducing the transfer to a MAT reserve at the end of the year. Changing this decision in the future would impact the tax levy or would require other funding sources.

8. COMMUNICATIONS
Should Council adopt this report notice will be provided to all accommodation operators of the decision and details of where to find information about the MAT will be provided. In the future it is recommended that staff develop an information flyer/ brochure for guests paying the tax if/when the tax is implemented.

9. CONCLUSION
Tourism is a significant employment and economic driver in Niagara-on-the-Lake and reinvestment in its promotion and development is critical to continue to grow this sector. The MAT would enable the Town to be able to increase investment without any additional contribution from local tax payers.

Staff are recommending that Council commit in principle to the implementation of a 4% MAT and to continue to work with the Municipal Accommodation Tax Committee to help ensure its success.

Respectfully submitted,

Peter Todd
Town Clerk

Kyle Freeborn Sheldon Randall
Director, Corporate Services/ Chief Administrative Officer (I)
Treasurer

ATTACHMENTS

APPENDIX I.pdf

APPENDIX II.pdf

APPENDIX III (2).pdf

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