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Alabama State Lodging Tax: A Lesson for All Camps
The first inkling Terrell Guthrie, director of the Alabama 4-H Center in Columbiana, had that his camp was in trouble was when a state revenue auditor showed up at his door and asked to go through his books.
“We couldn’t believe it. He said we needed to start charging a lodging tax to everyone who came to camp,” said Guthrie. As the tax collector got up to leave, he added, “By the way, you owe $50,000 in back taxes, too,” Guthrie recalled.
In the fall of 1994, Alabama’s camps, whose previous worries were mainly attracting campers and repairing canoes, faced a new threat. The state was facing some tough economic times and a dispute between a business conference center and a nearby camp had drawn the attention of the state’s revenue department.
To resolve the dispute, the State of Alabama decided to start asking camps to charge campers a forty-year-old lodging tax that had never been applied to them before. The state’s camp directors, who already had formed a statewide association years earlier, decided to oppose the tax. They had to do it soon to stop the state from charging camps back taxes for all the years and all the campers they had served in the last half-century. It was a policy decision that could put many camps out of business, camp directors feared.
The situation began when managers at a business retreat and conference center near Birmingham got upset when a nearby church camp began soliciting business groups to have retreats and meetings at the camp. The camp was struggling financially and decided to attract some business customers by advertising it had lower rates than area conference centers that charged a lodging tax.
Alabama’s Lodging Tax Law
According to a 1955 state law, the for-profit conference center had to charge its guests the lodging tax. The law was unclear about camps charging the tax. The conference center subsequently complained to the state revenue department, which saw an old tax law as a means to bring in a few extra dollars. That was when the Association of Alabama Camps (AAC) decided to get involved.
Association of Alabama Camps
The camp association was originally formed in the late 1970s when camp directors approached the state health department about developing regulations for camps in Alabama. Before that time, Alabama camps had no inspection or licensing program of any kind. After the licensing program was developed, however, the association never made the trip back to the Alabama Statehouse or even found it necessary to unite camp directors under a common cause.
The ninety-four-member organization was surprised when Guthrie, a member, told them about the state’s decision to begin interpreting a 1955 lodging tax law as a means to make camps pay the 4 percent state lodging tax plus the 7 percent Shelby County tax. The law had been applied to hotels and motels to collect a tax from transients, vacationers, and travelers, who stay overnight in Alabama. The money was used principally to promote travel and tourism in the state.
But questions arose since the revenue department regulations contained two provisions that applied to camps. One said privately operated summer camps maintained primarily for recreational purposes and made available to the public for a fee were subject to the tax. However, the law also said nonprofit summer camps “with attendance restricted to selected classes of persons” and primarily concerned with the development of good health and good character were not subject to the tax.
Guthrie’s camp was in the same county as the church camp and the business conference center, and the state revenue department told the two camps to start collecting the tax. In addition, the church camp directors were informed that they owed $100,000 in back taxes. Both camps were nonprofit camps, but let business groups and for-profit organizations use their facilities to host meetings and corporate functions, Guthrie explained. He figured it was the end for the 4-H Center, “I just asked him (the auditor) if he had his cuffs with him.”
Allen McBride, who is a director at Camp Mac in Talladega County, was president of the association at the time. McBride said if a new law was not passed, nothing would stop similar audits at other camps. Smaller camps, he added, would likely go out of business if they were forced to pay anywhere from six to forty years worth of back taxes. “The AAC Executive Committee met, and we decided to heed the words of Benjamin Franklin: ‘We must all hang together or, most assuredly, we shall all hang separately.’”
The association hired Birmingham attorney Bruce Ely, one of the chief tax lobbyists in Alabama as well as a former camper and the parent of two sons who attended camp in Alabama. Getting Ely’s help was, as Guthrie put it, “absolutely necessary, because we didn’t know anything about the state’s tax code.”
The solution, Ely said, would be to show legislators that taxing campers was never the intention of the Transient Occupancy Tax and that it should be clarified to specifically exclude camps. “The problem was our law was fairly broad and could have been read to include camps,” Ely said. “It was almost funny, though. The auditors were calling our kids transients.” The key, Ely said, was that camp association members worked together and moved fast to nip the problem in the bud.
Ely and camp association members contacted their state legislators, especially those on camp boards and those who had been campers or had children in camps. Getting legislators, the lieutenant governor, and the governor on the bandwagon was not difficult, Ely said, once the camp directors explained the consequences of the law in the right light — putting camps that nurtured children out of business.
“We just had to explain to them that we were trying to do something positive for children and so instead of putting the burden on us, they should be helping us,” Guthrie said. And, no legislator wants to be known as the one who taxes children, McBride said. “Camps have a lot more influence than they might realize. It’s hard to find someone who is opposed to kids and camps. Big corporations would pay millions for the kind of public image camps enjoy just for doing what camps do.”
One hurdle to overcome occurred when several travel and tourism interest groups opposed the bill fearing it would hurt the Alabama Bureau of Travel and Tourism’s budget. “This bill is a Pandora’s box and will open the door for anyone to claim the exemption for a group or a facility,” a county tourism official wrote to his legislator.
The main obstacle, McBride and Ely said, was defining a camp so hotels and motels could not find a loophole of their own to get out of collecting what most people considered a legitimate tax.
“You wouldn’t want the Hilton to put up a sign reading “Camp Hilton” and then not collect lodging tax,” said McBride.
In the end, the camping association made two key changes — satisfying the tourism industry and camps. Camps were defined as facilities operated primarily for the benefit of children, students, or members of nonprofit organizations. As long as a nonprofit camp derived more than 50 percent of its total annual gross receipts from serving children, full-time students, and other non-profit organizations, the camp would not have to collect the tax from any of those groups. Any business groups served by a nonprofit camp must pay the lodging tax. But if a nonprofit camp derives more than 50 percent of its annual income from serving for-profit groups, it must charge all of its guests the tax — including children, students, and nonprofit organizations.
Moreover, for-profit camps must receive 100 percent of their annual income from children, full-time students, and nonprofit groups in order to exempt their campers and guests from paying the tax. “That allowed camp directors to decide if their campers would have to pay the tax based on what groups they elected to serve.” McBride said. The bill drew bipartisan support from all branches of government and was passed unanimously.
A Glitch Resolved
The situation appeared to be resolved after the bill was signed into law, but a glitch popped up the following summer: What about taxes at camp stores, camp food service facilities, and on other items camps buy and sell?
So Ely and association members sat down to go through any possible gray areas in the tax laws that might come up in the future, McBride said. They decided not to go back to the legislature and ask for additional laws to address these issues, but rather work with the Alabama Department of Revenue to craft regulations to clarify which taxes applied to camps and how those taxes would be calculated and collected. At that point, however, collecting more money from campers was the last thing on the Department of Revenue’s mind, according to McBride.
“What really worked in AAC’s favor was that the association had just finished pushing through the new legislation, and the Department of Revenue had taken some pretty hard licks in the news media. They really didn’t want to stir up the camp community and the legislators again. It was better for everyone to handle these other questions before another problem arose,” he said. “They were not going to let camps get away with anything, nor did we want to, but they were quite cooperative. As long as it seemed fair, they were happy.
“We wanted it to be just. We expected to pay all taxes we owed and no taxes we didn’t owe,” McBride said. “We tried to look at the tax issues that might affect camps and address those in advance so camps would have guidelines. Some of it was as simple as allowing camps the option of electing to pay sales tax on food at the time of purchase, or paying the tax when the meal is served.”
In particular, the association focused on the state’s amusement tax and sales tax on meals, souvenirs, and snacks. Alabama has a 7 to 9 percent amusement tax and a 7 to 9 percent sales tax, varying by county. Had lodging taxes and these other taxes been charged to campers, it would have added up to about $33 per week for the average camper at an average Alabama camp, according to a report Ely published to help camps calculate how taxes could apply to them. A camp serving 100 campers a week for just ten weeks in the summer could have owed an additional $33,000 (or more) annually in taxes.
Since the events of the mid-90s, the association has been keeping watch on issues affecting camps and camping in the state and has worked to maintain close ties to legislators. In fact, they have recently contracted a governmental affairs representative to monitor proposed legislation and regulations in the state capital, as well as represent the camp community in Montgomery.
Moreover, McBride, legislators, and other camp directors see what Alabama camps did as an example of what camps in other states might consider following. Camps have to be aware of their state’s laws and what is going on in their state capitol, McBride said. National camp groups such as the American Camping Association, CCI/USA, Scouting organizations, and other youth-serving organizations perform essential and invaluable functions, but when it comes to state and local issues, local camps must take responsibility.
Additionally, the National Federation of Independent Business (NFIB) is the largest advocacy organization representing small and independent businesses in Washington, D.C. “The NFIB’s influence and reach has provided invaluable assistance and representation to Alabama’s camps on both state and federal levels,” said McBride.