Nickel and Dimed

Like car rental taxes or road tolls, taxes on hotel rooms are a way for cities to make money without angering their local constituents. On the plus side, these taxes go a long way in funding convention and visitors bureaus and their meetings-related services.
The disadvantage for planners, however, is that they usually have no say (and often no warning) when cities decide to jack up room taxes to make up for budget shortfalls.

In Las Vegas, city leaders are battling out a proposal to increase the hotel room tax by 2 percent to fund local schools. The proposal was made as an alternative to a petition by the Nevada State Education Association to increase taxes on gross gaming receipts, but casino developers suggested raising the room tax instead. At the same time, a budget forecast by the Las Vegas Convention and Visitors Authority projects the agency will collect $219 million in room taxes this fiscal year, a 3.5-percent decrease from an earlier estimate of $227 million. The $8-million drop in expected tax revenues was attributed to a downturn in visitation and gaming figures, and convention attendance was down 7 percent in March, following double-digit declines in January and February. The CVA gets 80 percent of its funding from room taxes.

Rising hotel taxes aren’t isolated to Las Vegas. U.S. hotels raised $1.6 billion in taxes and surcharges in 2007 (compared with $550 million in 2003), and that figure is expected to rise to $1.75 billion for 2008, according to Pricewaterhouse-Coopers. Granted, room taxes are a small part of the range of surcharges hotels and resorts levy on guests, but they are non-negotiable and unavoidable. New York levies a 5-percent hotel room tax on visitors, in addition to an 8.75-percent sales tax.

In Baltimore, increasing the hotel tax in Anne Arundel County from 7 percent to a proposed 10 percent would have generated an estimated $6.3 million. The proposal was shot down after local and state tourism officials warned that the measure would drive away visitors.

MaryAnne Bobrow, president of the Sacramento/Sierra Nevada chapter of Meetings Professionals International, and head of association management services company Bobrow & Associates, compared rising hotel taxes to rising airline fuel surcharges and fees. “Hotels have had a double-whammy to their revenue because of the demise of some airlines with whom they had contracts to house their crews overnight and more farmers switching their crops to corn for fuel use, thus escalating food prices,” Bobrow said. Combined with a decline in leisure travel business, destinations like Las Vegas are beginning to feel the strain, so increased taxes “are not out of the realm of possibility” along with increased food and beverage charges.

“That will inevitably lead to the question, ‘Will the attendees come?’ Quite the vicious circle! This will be both an interesting and challenging year for all of us,” Bobrow said.

But just as high hotel charges can adversely affect meetings, so too can lack of revenue and understanding of what meetings and tourism do for a community. For example, according to a recent Wall Street Journal article, Visit Winston-Salem, a regional CVB in North Carolina, is beset with questions as to what its current revenue of 6-percent hotel-occupancy tax is expected to fund—meetings or community grants. The county commissioner, Ted Kaplan, is also exploring whether to repeal the tax altogether. In Fort Lauderdale, the convention center is being prevented from spending tax money on a convention center hotel.

Thus, as the economy slumps, it remains to be seen who will be short-changed—those who raised the hotel taxes to reinvest in their meetings infrastructure, or those who put vital projects on hold.

Originally published June 16, 2008