MCLEAN, VA – For business travelers who’ll be back on the road this new year, there’s some good news: Cities don’t appear eager to increase taxes for renting a room or eating a meal.
“We’re not aware of any move to raise taxes on the travel industry,” says Lars Etzkorn, program director for the National League of Cities. “By and large, local governments are still belt-tightening. Any increase in taxes affects the marketability of that community, and so it’s never done without careful consideration.”
But with many cities still struggling amid a slow economic recovery, some may ultimately decide to raise taxes on business travelers and tourists rather than boost the property taxes of local residents to help bolster their budgets, some travel experts say.
“We have localities hurting for revenue sources,” says Joe Bates, senior director of research for the GBTA Foundation, the education foundation for the Global Business Travel Association. “So they may see this as one more way to tap into the wallets of travelers.”
A handful of cities have raised travel-related taxes to deal with deep budget gaps the last year or two. Baltimore, for instance, raised its hotel occupancy tax from 7.5% to 9.5% in July 2010 to help counter a $121 million budget shortfall, the biggest the city has dealt with in decades. That same year, Boston imposed a meals tax of 0.75% for the first time, and increased its hotel tax from 4% to 6% to deal with budget woes, according to mayoral spokesman Christopher Loh.
Baltimore officials considered how visitors might respond. “There is always that concern,” says Ryan O’Doherty, spokesman for Mayor Stephanie Rawlings-Blake. “But our tourism and hospitality industries remain strong, despite the tough economic environment. In this case, the tax was part of a broader revenue package put in place to avoid any increase in local property taxes, which is a far greater concern.”
Some other cities have looked to travel taxes to support specific projects. In San Diego, for instance, a proposed room tax increase that would range from 1% to 3% depending on the location of the hotel, is being considered to help finance a $550 million expansion of the city’s convention center.
“There are conventions that will leave, that typically come here every year, if we cannot expand the center,” says Darren Pudgil, spokesman for Mayor Jerry Sanders. Pudgil says the increase would bring in an estimated $12 million in revenue annually, and the convention center’s expansion is projected to have a $700 million economic impact on the region.
“We wouldn’t be proposing it if it weren’t for the expansion,” he says.
Taxes can affect travel plans
Still, raising taxes on hotel rooms, restaurants or car rentals can ultimately backfire if it leads corporate meeting and travel planners to steer their dollars to cheaper destinations, says Bates of the GBTA Foundation.
“Business travelers and their companies are always negatively impacted by local travel taxes, which in turn hurts the local economy,” he says.
A foundation analysis released in July found that in the nation’s 50 most popular destinations, car rental, hotel and meal taxes add to a visitor’s tab beyond what they pay in general sales taxes. And the tax burden was much heavier in some cities than others.
Someone visiting Seattle, for instance, pays 60% more in taxes for a one-night stay than a tourist in Portland, Ore., Bates says. While a one-night business trip to Boston can cost 46% more in taxes than taking a short jaunt to Hartford, Conn.
“A high travel tax rate can deter travel to a destination and actually hurt the local businesses that rely on travelers, such as hotels and rental car companies, an unintended negative consequence of trying to fill a budget shortfall,” Bates says.
Meeting and travel coordinators can wrangle better hotel rates, he says, but “the one thing you cannot negotiate are the taxes.”
Kevin Mitchell of the Business Travel Coalition says corporate travel managers usually know the cities with the highest taxes.
“However,” he says, “if a given city is where current or prospective clients are located, you have to travel there regardless of taxes. Taxes are a cost of doing business and would not likely deter a sales executive from taking a trip or (taking) the opportunity to take an important client out to dinner.”
But, he says, if taxes are especially high, a traveler may go to New York City for meetings, for instance, but stay in nearby Connecticut or New Jersey. Companies also may cut down on the number of trips to more expensive locales.
And when organizing meetings for staff or board members, Mitchell says, “taxes do receive careful consideration … and can make a difference if a meeting goes to South Florida, Bermuda or Scotland.”
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