Governments seek tax hikes to raise meetings' hotel tabs.

Several state and local governments in recent months have proposed, implemented or approved tax hikes on hotel stays as they put the onus of closing budget shortfalls on meeting planners, out-of-towners and travel buyers.

Popular meetings destinations Hawaii and Las Vegas last month enacted new taxes on hotel room stays, while Oakland, Calif., last month passed a measure to do so. Boston at press time also was poised to pass a new hotel tax, joining the more than one-quarter of the 100 largest U.S. business travel destinations that have increased lodging taxes since the beginning of 2008.

"Every time there is a downturn in the economy and jurisdictions have trouble with funding, they add some type of occupancy tax that goes into the general fund," American
Hotel & Lodging Association president and CEO Joseph McInerney said. "It happened after 9/11, and it's happening now."

Hawaii on July 1 became one of the latest states to raise hotel taxes, increasing the statewide occupancy tax rate by one percentage point to 8.25 percent. Overriding the governor's veto, Hawaii state legislators in May voted to increase hotel taxes in two phases, with the next phase taking effect on July 1, 2010, when the tax rate will rise another percentage point.

The legislation, however, characterized those increases as temporary, with plans to "sunset" them on June 30, 2015.According to the bill, the state is dedicating about half the newly collected revenues to tourism initiatives and convention center activities, while the other half is allocated for general funds in several Hawaiian locales.

Las Vegas on July 1 raised its occupancy tax rate to 12 percent from the previous 9 percent, though a Las Vegas Convention and Visitors Authority spokesperson noted "a couple of places in downtown Las Vegas where that rate is a little more. It was a 3 percentage point increase, but they capped it at 13 percent, so it can't go above that."

While other states have used funds generated from such taxes to update convention centers and bulk up tourism marketing, the hike in Las Vegas "for the first two years goes into the state general fund," the LVCVA spokesperson said. "After that, it goes to fund education. We don't see any of the revenue from that new tax."

McInerney said AH&LA works with local chapters, hotel operators and other travel organizations, including the U.S. Travel Association, to represent those subject to hotel taxation and prevent state and local governments from increasing occupancy taxes. For those state and local proposals that do pass, however, industry groups have encouraged governments to steer the proceeds toward tourism initiatives.

"That's easier for us to swallow because they help generate more business and bring more people in," McInerney said. "That's what we try to encourage if there is going to be something passed: Let's earmark it so the proceeds will help the industry."

Though the tax increase in Las Vegas is poised to add costs to meetings budgets, the Las Vegas spokesperson noted that the tax is "just on the room rate," and won't impact food and beverage, meeting room rental or other meeting costs.

Nevada has long relied on revenue generated from gaming and hospitality, and with the current travel and meetings slump hitting the state hard, its coffers are drying up. While pushing the Travel Promotion Act during a Senate hearing in May, Sen.Harry Reid (D Nev.) said, "Nevada has no state income tax, and in 2007, 27 percent of the state budget came from revenues generated by the travel industry. Revenues from hotel-room taxes, car rentals and sales taxes fund most of the basic services provided by local governments scattered around the state. The recent decline in visitors to Nevada has unfortunately contributed to the worst state budget shortfall in the state's history."

While closing budget shortfalls, hotel tax increases also act as a de facto price hike for meeting planners, making it tougher for tourism officials who are "trying to sell their city for people to come there to do business," McInerney said. "If the taxes there are 25 percent and a comparable city has taxes of only 17 percent, then the numbers are 8 percent less. If the taxes get too high, people aren't going to come anymore."

Despite the risk of alienating potential meetings business, such tax increases are a popular way for state and local governments to raise revenues that fund local services without raising taxes on voters. That was the case in Oakland, where three-quarters of voters in] July passed a measure to hike the hotel occupancy tax to 14 percent from 11 percent, effective Jan. 1, 2010.

The Oakland Convention & Visitors Bureau last month said that in December 2008 it had lost city funding "as a result of budget reductions related to the current economic crisis and has relied on private funding since." Of the additional 3 percent surcharge on hotel room nights, 50 percent is earmarked to fund the convention and visitors bureau, with the remaining 50 percent to go toward city attractions and events.

Even before these most recent tax actions, more than 25 of the largest 100 business travel markets in 2008 witnessed an increase in taxes and fees assessed on hotel stays—whether through hikes in the occupancy tax rate, the addition of surcharges or state or local sales tax increases, according to data published in the 2009 Corporate Travel Index report from MeetingNews sister publication Business Travel News. Those increases ranged from 3 percent in Atlanta and El Paso, which brought the total tax rate on hotel stays in those cities to 15 percent and 15.5 percent, respectively, to the more modest .5 percent in Peoria, Illinois, which now charges 12 percent per room night.

Since BTN issued that report, New York on March 1 raised its hotel occupancy tax from 5 percent to 5.875 percent "for all room types," the city said, bringing the total taxes levied on a room night, including state and city sales taxes, to 14.25 percent plus a $3.50 surcharge.

Boston is poised to follow. Thanks to recent changes in the Massachusetts tax code, Boston is proposing to increase its occupancy tax by 2 percentage points, while adding .75 percentage points to its tax on dining out. That would bring the overall taxes on a nightly room rate in Boston to 14.45 percent and its dining tax to 7 percent, effective Oct. 1.

Though at press time, Boston's city council had yet to vote on the measure, a CVB spokesperson said the vote was just "a formality," claiming broad support from the mayor and the council made approval a foregone conclusion.

Massachusetts increased its state sales tax to 6.25 percent from 5 percent, effective Aug. 1, which applies to hotel room nights.

Boston mayor Thomas Menino in late July told hospitality industry leaders that the new taxes could bring $18 million in revenue to the city in the next 12 months. "None of us like new taxes—we have kept property taxes steady," Menino said in a statement, "but as I see it, these local option tax increases would primarily impact visitors to our city, and travel, tourism and convention business remains strong."

Meanwhile, South San Francisco, a city that houses many hotels that surround San Francisco International Airport, also is considering increasing from 9 percent to 10 percent its hotel occupancy tax, with plans to put the measure before voters in November.

The Indianapolis City-Marion County Council on Aug. 10 will have a final vote on whether to increase its occupancy tax by 1 percentage point. If passed, the new tax would take hold on Sept. 15.

Originally published Aug. 10, 2009 This page is protected by Copyright laws. Do Not Copy