The potholes in Whitefish used to be so big they made front-page news.

“I remember one springtime in Whitefish when Rick Nelson’s VW bug got stuck in a pothole in front of the Buffalo Cafe,” recalled Lin Akey, president of Glacier Bank in Whitefish.

That’s a true story, Nelson’s wife, Marilyn, confirmed. It was in the mid-1970s, and the Volkswagen Beetle was so buried in the cavernous pothole a photograph was taken and published in the Whitefish Pilot.

Twenty years ago Whitefish was still referred to as Pothole City.

Not so much any more.

Once Whitefish’s 2 percent resort tax took effect Feb. 1, 1996, the city was able to begin building up money for street repair, and one by one many of those potholed streets have been rebuilt.

Over the past two decades the city has spent $16 million on street reconstruction, including an expansive downtown streetscape project that has spurred visitor traffic.

It was really those nasty potholes that got the ball rolling on getting voters to support a resort tax for Whitefish.

“I was on the City Council and we had a budget of $80,000 [annually] for roads in those days,” Akey remembered. “You couldn’t pave a block with that budget.”

Akey and other city leaders had heard about the improvements being made in other resort towns with a resort or “luxury” tax as it was also called. They traveled to West Yellowstone to learn how that community had set up its resort tax.

Akey, current City Council member and former Mayor Andy Feury, then-Mayor Jimmy Welsh and the late Coco Bee, who also served on the City Council, were among the city leaders who led the effort to establish a resort tax in Whitefish.

The big task was persuading the state Legislature to raise the population cap for resort-tax communities from 2,500 to 5,500. Lawmakers also had to designate Whitefish a “resort community.”

“The four of us got it all laid out,” Akey said. “We went to Helena eight times to get it passed. Jimmy and I knocked on every door in town.

“We didn’t ever think in our wildest dreams that it would pass the first time,” he added.

But the 2 percent proposal did pass, though by a narrow margin in the general election of 1995. In 2004 city voters overwhelmingly agreed to extend the tax to 2025.

The tax structure mandates 65 percent of the revenue be used for street reconstruction. Twenty-five percent is set aside for property-tax relief and 5 percent goes to park and trail projects. The remaining 5 percent is retained by merchants to offset costs they incur in collecting the tax.

Voters approved an extra 1 percent resort tax in July 2015 — raising the tax to 3 percent — but that revenue is earmarked to buy a conservation easement to protect the city’s drinking water supply in Haskill Basin.

The tax was controversial when it was proposed and even after it passed, though naysayers are less vocal these days.

“I still get an anonymous letter once a year from someone upset about it,” Akey said. “They have a great memory.”

Sam McGough, who owns McGough & Co., a downtown Whitefish jewelry and gift store, was one of the vocal opponents 20 years ago, and he still isn’t happy about the tax, though he admits “it has done a lot of good.”

McGough’s argument is that Whitefish is the only community charging the resort tax that is in close proximity to another larger city.

“The other places that have resort tax, they’re 40 to 100 miles from other major cities. Kalispell is 12 miles down the road,” he said. “It’s the principle of the whole thing. Montanans don’t want to pay tax.”

McGough doesn’t charge local customers the resort tax as a way of encouraging Flathead Valley shoppers to come to his store. He has had people travel from Eureka and other places to specifically shop in his store because it doesn’t pass the tax along to locals.

The tax is collected at lodging facilities, restaurants and bars and for “luxury” retail items. Retail business owners bore the brunt of controversy during the first few years of tax collections, but the feedback from shoppers has decreased through the years.

“We haven’t recently had it come up,” Imagination Station co-owner Denise Magstadt said. “When it was first implemented it definitely came up quite a bit. It is hard to take the brunt of the conversations sometimes.”

These days visitors are used to sales taxes in most other states.

“I don’t think we’ve ever lost a sale to the resort tax,” Magstadt said. “And I think it’s helped a ton, with bike trails and walking trails. Our roads are so much better.”

At Nelson’s Hardware, very few items are taxed, so the hardware store gets little public input about the tax, Marilyn Nelson said. “The other retailers are the real heroes,” she stressed.

Before the proposal went to voters in 1995, city leaders argued at length about what retail items to tax, and ultimately decided that most of the apparel items sold in Whitefish — even underwear — are high-end garments geared to tourists.

Gary Purdy, then owner of the Whitefish Army-Navy Store, was the first business owner to proclaim he would absorb the tax and wouldn’t pass it onto customers. Work boots and coveralls aren’t luxury items, he argued at the time. The store, now operated by Purdy’s son, Briar, still doesn’t charge customers the resort tax on that principle.

Retail stores have collected the most tax, with $12.5 million in tax revenue contributed to city coffers. Taxes on restaurant and bar food and drinks have generated $10.4 million, and lodging facilities have brought in more than $5 million over 20 years.

The issue of paying Whitefish’s resort tax rarely comes up at Grouse Mountain Lodge, according to Marketing and Public Relations Manager Rebecca Baker.

“We don’t seem to get too much negative about the tax,” Baker said. “We’re fortunate in Montana to have lower bed taxes than a lot of other states. We very rarely get negative feedback. People are supportive of it generally.”

In addition to the 3 percent resort tax, Whitefish lodging facilities collect a 7 percent state accommodations tax and a 1 percent voluntary business promotion tax, bringing the total tax to 11 percent to rent a hotel room in Whitefish.

Chris Schustrom of the Garden Wall Inn his guests also rarely ask about the resort tax.

“Our guests coming from other places pay far higher taxes,” he said. The resort tax “has been really successful and a positive this for the community and infrastructure.”

The Central Avenue rebuild has been one of the most successful projects in Schustrom’s opinion, because it not only upgraded the infrastructure but also revitalized the downtown and spurred pedestrian traffic. By attracting more people to the downtown area it has boosted resort tax revenue, which in turn translates into more street and park improvements.

Whitefish Chamber of Commerce Director Kevin Gartland said the overall benefit of the resort tax “has outweighed the negatives,” but the tax is a balancing act that depends on the vitality of the local economy. Garland said he has heard from some hoteliers that the cumulative effect of the 11 percent tax on hotel rooms is pushing the level of what the market will bear.

“That well is about as deep as it’s going to go,” Gartland said. “The tax doesn’t rise to the level at resorts outside of Montana, but we’re right there. It depends how tough times are.”

Akey admitted there are still some retailers who still think of the resort tax as an “encumbrance, especially at a time when the Canadian dollar and oil prices are out of whack.

“The whole idea from Day One was we’d seen this work in other communities,” Akey said. “I’m still not certain we’re doing it right, but I don’t know what right is. We’re always nervous to talk about it; you pay extra to play in Whitefish.”

Akey said he wished the entire Flathead Valley could qualify to have a resort tax because of the infrastructure needs of an area heavily dependent on tourism.

He also said it’s a balancing act.

“We have to be very cautious not to kill the golden goose and there’s a fine line there,” Akey said.

Features editor Lynnette Hintze may be reached at 758-4421 or by email at lhintze@dailyinterlake.com.