Facing record deficits, states and cities crank up hotel taxes

By Jeri Clausing

When budgets get tight, politicians turn to taxes. And hotel and tourism taxes often make easy targets because they are paid by out-of-town visitors -- in other words, by somebody else’s constituents.

This year is no exception. From Hawaii to New York and points in between, local and state budget writers are looking at a variety of travel-related taxes to shore up everything from major budget shortfalls to convention and stadium operations and law enforcement.

While local hotel associations have in many cases launched vocal opposition campaigns, Todd Hagerty of the National Conference of State Legislatures insists that tourism industries are not necessarily being singled out.

"I think what you are seeing here is that the states are in such a tough situation," Hagerty said. "It’s pretty dire, pretty grim. You are seeing furloughs, across-the-board cuts, cuts to education, cuts to health care. On the revenue side, you are seeing select taxes, fee increases and also broad-based taxes. I think the situation is tough enough in the states that everything is on the table."

In Louisiana, one lawmaker has proposed raising the hotel tax from 4% to 4.5% to help fund the district attorney’s office.

Rep. Cedric Richmond (D-New Orleans) told the local news media that the increase in the hotel/motel tax is not a stretch for a revenue source. "Crime affects the tourism industry," Richmond told the New Orleans Times-Picayune. "We have to find money for the D.A.’s office."

In Indianapolis, city politicians want to raise the room tax from 9% to 10% to bail out the city’s ailing Capital Improvement Board.

In Massachusetts, lawmakers are considering a bill to raise the state’s meal tax from 5% to 6% and the state hotel tax from 5.75% to 6.75%. That proposal would also allow local communities to add another percentage-point hike to those taxes. The money would go to municipalities suffering from state budget cuts. In New Hampshire, a similar proposal is on the table.

Perhaps the most vocal fight was waged in Hawaii, which is among the destinations hit hardest by the recession.

Hawaii Gov. Linda Lingle earlier this month vetoed legislation that would raise the hotel room tax across the state. But lawmakers, desperate to shore up an unprecedented $2 billion shortfall in tax revenue, overrode the veto on May 8 to make the tax increase law.

Beginning July 1, the islands’ hotel tax will increase from 7.25% per day to 8.25% in July. In July 2010 it will rise again, to 9.25%.

While that increase is only 2 percentage points, opponents argue that it translates to a 27.6% jump that will spell disaster for an industry already in crisis mode.

"Why? Because it would raise the cost of vacationing in Hawaii, thus further cutting the flow of visitors," Richard Kelley, chairman of Outrigger Enterprises Group, wrote in a recent editorial.

Henry Perez, director of owner relations and operations for Aqua Hotels & Resorts, said, "One of the biggest concerns the hotel industry has here in Hawaii is that when these new taxes go into play starting July 1, it’s going to make us one of the highest-taxed destinations around. We feel that with this new tax law, we are just going to see a prolonged decline. We’ve spoken to our wholesale partners, and they have stated that because of this tax they feel that people are going to go to other destinations."

Others questioned whether 1 percentage point would really make a difference.

"Let’s say an average room is around $185 right now, so at 1% you’re paying an extra $1.85 a day and $3.70 for two days and less than $10 over five days," said Rep. Marcus Oshiro, chairman of the Hawaii state House Finance Committee. "We don’t think that paying an extra 2 bucks a day is going to stop anyone from visiting Hawaii, especially in light of the bargain-basement prices of accommodations and packages that are being offered right now."

Nevada lawmakers are finalizing details of a hotel tax hike that was approved by that state’s voters in November. The hotel industry was split on that measure, which would allow a 3% hike in room taxes, although the total tax would be capped at 13%.

New York’s City Council in December approved increasing the hotel tax from 5% to 5.87%.

At the local level, said Christopher Hoene, research director for the National League of Cities, the trend has been to shift away from taxes to fees.

"Fees tend to be more politically palatable to the public because they tend to be levied based on the amount of service used, so the payer sees that he or she is paying for services rendered," he said. "Tourism-related fees are even more politically palatable to citizens and voters because most of the time the payers are from out of town; the fee burden doesn’t fall on local residents."

Hoene said he did not yet have "any hard data yet to say definitively whether greater reliance on tourism-related fees amid the current economic downturn is a trend."

But, Hoene noted, "It certainly seems likely that increasing the types of fees used, and increasing the rates for existing fees, would be something generally that cities would be doing in order to balance budgets."

Hawaii correspondent Shane Nelson contributed to this report.

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