August 14, 2022

Itineraries: The Steep Price of Visiting

In the last two years, cities including Boston, Baltimore and San Jose, Calif., have passed tax increases on hotel rooms, restaurant meals or parking garage rates. And major business travel destinations like San Diego and Atlanta are considering higher taxes. Last month, Gov. Nathan Deal of Georgia signed legislation permitting Atlanta to raise its hotel room tax by one percentage point and San Diego’s mayor, Jerry Sanders, proposed increases of one to three percentage points — based on the hotel’s proximity to the city’s convention center — to help pay for an expansion of the center.

For financially troubled municipalities, these tax proceeds help fill depleted coffers, and taxing visitors rather than local voters can be politically advantageous. The most common way to tax visitors is via a special tax, in addition to the ordinary sales tax, on hotel rooms. For travelers, this “bed tax” can add significantly to the cost of lodging, especially for long stays or visits to cities with high hotel rates. In some cases, the tax burden — on top of high airfares and room rates — is significant enough that some travelers are even altering their plans, cutting their stay short or seeking out cheaper properties.

“The hotel tax is so visible, they see how these taxes are hitting the bottom line of their hotel bill, and that becomes, in many regards, what sticks in people’s minds,” said Deborah Sexton, president and chief executive of the Professional Convention Management Association, a trade association for people who plan large conventions and trade shows. “All those dollars add up. In the end, it’s going to mean fewer people attending or people staying for a shorter period of time.”

The U.S. Travel Association corroborates this observation, saying that many travelers have cited high tourist taxes as a reason to go to less expensive hotels or restaurants, or not to visit certain destinations at all.

Dan Poynter, an author who took a recent trip to New York City to attend BookExpo America, said he had changed his travel habits because of taxes. In 2010, Mr. Poynter said, he stayed for more than a week when he attended BookExpo, But this year, after seeing how high the hotel taxes were, he cut his visit in half.

“I was shocked when I went to check out and saw that they tacked on like $49 a day in taxes,” he said. “I just don’t want to spend the money and give it to New York City when they’re gouging us.” The tax on hotel rooms in New York City is 5.875 percent, plus $2 per room for the bed tax, plus 8.875 percent in combined city and state sales tax. In Mr. Poynter’s case, his hotel room last year cost $313 a night plus a $27.78 sales tax, $18.39 in city taxes, a $2 occupancy tax and a $1.50 Jacob K. Javits Convention Center tax.

New York City’s taxes on visitors, in fact, ranked second in the nation in a study published last year by the Global Business Travel Association. The highest taxes in the association’s list of 50 destinations were levied by Chicago. There, the combination of hotel room, rental car and restaurant taxes in the city center are estimated to cost travelers an average of $38.75 a day.

By contrast, visitors to Fort Lauderdale, Fla., would pay an average of $21.22 in daily taxes if they stayed in the city center.

The bed tax, the largest component of the total taxes borne by visitors, is usually used to finance the development or expansion of convention centers and to market the destination. Doug Ducate, president and chief executive of the Center for Exhibition Industry research, says a convention center is typically a municipality’s largest expenditure. Cities issue bonds to pay for construction of new convention centers or expansions of existing centers, and the bed taxes help pay the cost of the bonds.

In 2009, when the recession cut into business travel and convention bookings slowed markedly, travel tax receipts around the country also plummeted. Even Las Vegas, a city that has weathered previous recessions relatively well, struggled. The Las Vegas Convention and Visitors Authority, which markets the city and operates the Las Vegas Convention Center, earns 80 percent of its revenue from bed taxes, its president and chief executive, Rossi Ralenkotter, said.

“We saw a decline not only in our visitor counts, but our convention counts as well as the average daily rate,” he said. “Our budget declined $67 million over two fiscal years,” he added, even with a recent countywide hotel tax increase, because that money was earmarked for other purposes.

In recent months, the tide has been turning. Mr. Ralenkotter said the average daily room rate rebounded by 10 percent in the first quarter of this year, and visitor numbers had increased as well.

Even if Las Vegas could have raised its hotel tax to make up the difference, it might not have wanted to. Higher hotel taxes can have drawbacks for cities. Raising taxes too high can make a destination less attractive, especially for large event bookings or price-wary groups. For this reason, cities are sometimes cautious in escalating taxes on out-of-towners. San Francisco contemplated raising its 15.5 percent hotel tax by an additional two percentage points last year, but rejected the measure after vociferous criticism from local businesses.

High taxes on airfares, combined with fuel surcharges, have created another burden for travelers, especially those taking trans-Atlantic flights, Robert Mann, an airline industry consultant, said. In fact, passengers who seek lower prices by flying multiple carriers may wind up paying more in taxes than those who book through a single carrier, Mr. Mann said, because taxes and fees are generally levied at the point of origination. Two one-way tickets means two originations, which could potentially mean two sets of additional charges.

Some American travelers near the Canadian border even drive to airports in Canada to find some relief from high taxes. “I think there are some folks who fly through Toronto, for example,” Mr. Mann said. “It can sometimes be less expensive than some of the U.S.-imposed taxes, especially for international journeys.”

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