How Higher Hotel Taxes Impact Lodging Business and Local Economies

April 13, 2011

Feature HotelTax

By Lisa Lance

According to the St. Louis Convention and Visitors Commission (CVC), in St. Louis City and County, taxes paid by tourists save each household an average of $811 they would  otherwise have to pay in taxes. Revenue from hotel taxes is not collected by the Missouri Department of Revenue; rather, hotel taxes are imposed locally by cities. Since these taxes are, in theory, paid by out-of-town visitors and not by city residents, raising hotel taxes may seem like the perfect way to raise funds. This issue gained prominence in the St. Louis metro area last fall, when Clayton, Richmond Heights and St. Peters proposed measures to increase hotel taxes on the November ballot. All three municipalities were seeking to increase the tax by up to 5 percent over existing rates. The total checkout tax at the time was 15.42 percent in Clayton, 15.67 percent in Richmond Heights and 12.5 percent in St. Peters. “The St. Louis CVC board voted to support its member hotels in the communities of Clayton and Richmond Heights by opposing their ballot measures,” said Kitty Ratcliffe, president of the St. Louis CVC. “In addition, the CVC objected in principal to any community in St. Louis County which would attempt to levy a tax on top of the existing legislation, which provides for a tax on hotel rooms dedicated to marketing the region as a destination for visitors.” She added that the CVC did not take an official position on the St. Peters measure, but the organization supported member hotels that opposed it. “I think that cities are getting a little greedy and see hotel tax as something their own citizens never have to pay,” said Marci Bennett, executive director of both the St. Joseph Convention and Visitors Bureau and the Missouri Association of Convention and Visitor Bureaus. St. Joseph faced a similar measure last November, with a proposal on the ballot to raise the 3 percent hotel tax rate to 8 percent, which would have raised the total checkout tax to 15.47 percent. This measure also was defeated. “If they had gone to 8 percent hotel tax, the total would have been higher than St. Louis or Kansas City,” Bennett said. “That puts us out of the market.” (St. Louis City’s total checkout tax is 14.886 percent and Kansas City’s is 15.35 percent.) Jorgen Schlemeier, a lobbyist with Gamble & Schlemeier Governmental Consultants in Jefferson City, agreed that high local hotel tax rates could put hotels out of competition with other cities. When asked about the proposed Clayton and Richmond Heights tax measures, he said, “Voters fortunately rejected the measures, but had they approved them, they would have had the highest rates in the county.”

When More Means Less
“High(er) tax rates hurt cities if they are substantially higher than the competing destination,” said Ratcliffe. “A couple of percentage points does not typically make the decision, and the overall rate needs to be taken into account first.” She mentioned an “extreme example” in New York City “where the tax difference was so great, and the rates were higher to begin with, that meeting planners across the country boycotted NYC, causing the city to repeal the high rate.” In 1990, a state-imposed hotel tax raised New York City hotels’ total checkout taxes to 21.25 percent. In response, according to the New York Times, the Professional Convention Management Association made a formal recommendation to its 3,100 members to avoid New York until the tax was lifted. The tax was repealed in 1994. Schlemeier also pointed to the New York City example. “[They] realized they were not getting convention business and immediately took action to drop room rates,” he said. “The meeting planners do look at hotel tax and compare it,” said Bennett, adding that consumers are also beginning to take notice. She believes high rates have the potential to impact development, as well. “Hotel developers really do look at the hotel tax in a community,” she said. “I think it inhibits the development of new hotels.”

Where Does the Money Go?

Feature HotelTaxChart2

These recent ballot measures have stirred controversy, but hotel taxes can sometimes benefit local economies. “Not [if it is] a higher rate than your competitors, but it is a good way to generate revenue for worthwhile projects,” said Bennett. “But don’t use it to rebuild sewers – it should go into projects that enhance your tourism entity.” “Hotel taxes, when used properly to increase the number of visitors to a community, have a very positive effect,” said Ratcliffe. “Communities that recognize tourism as a vital part of their economies and support the marketing and sales of their destinations by convention and visitor bureaus will see great benefit from the use of taxes for this purpose. In St. Louis City and County, as an example, 21 million people visit the region annually and spend $4.2 billion.” Tracy Kimberlin, president and CEO of the Springfield Convention and Visitors Bureau (CVB), said Springfield has seen hotel tax increases over the years – from 2 percent to 4.5 percent in 1998 and then to 5 percent in 2004.And although some hotels were opposed to the increase and were concerned people wouldn’t stay, that did not turn out to be the case. Kimberlin said the purpose of the first increase was for tourism-related capital improvement projects. Now with the 5 percent tax, the Springfield CVB gets half and the rest goes to tourism-related capital improvement projects such as the Wonders of Wildlife museum. He said the intended allocation of funds is not necessarily important for community support. “In my opinion, local voters would happily vote on a hotel tax increase to fill in potholes.” But, he said, “The fair thing to do is to use the increase to benefit the industry.” Schlemeier said hotel taxes are often partnerships between hotels and communities, as long the hotel tax is no more than 5 percent. If the funds go toward a sports complex or convention center, he added, “those structures themselves bring in tourism to the community.” However, he cautioned, “If that money isn’t poured back into marketing or tourism for those hotels, then that’s a real problem.” “It boils down to how effective the hospitality industry is in communicating the situation, as otherwise it is relatively easy for politicians to spin this as a tax no one locally has to pay,” said Ratcliffe. “The industry has to help the voter understand the consequences of making hotels in their community unable to compete with hotels in other communities. When business is lost to other communities, the voters themselves are the ones who suffer. Fewer visitors staying in hotels means fewer shoppers in local stores, fewer diners in local restaurants and less sales tax revenue for the community, which means a tightening of services for residents.”   MM&E

(Lisa Lance is a contributor from Towson, Md.)

moz screenshot

About the author

The MEET® Family of Publications

The MEET® Family of Publications produces regional and national publications that keep corporate, association, medical, education, independent, and religious meeting and event planners informed about relevant industry suppliers, news, tech innovations, and resources that impact and influence how and where they plan their upcoming company function(s).