City Council: Hospitality Leaders Accuse Double Taxation

Posted on May 15, 2009

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Tourism might be permanently crippled by city’s proposals

By Brian Mori, Inside Tucson Business
Published on Friday, May 15, 2009

Tucson’s tourism industry — already wounded by the current economic recession — might be permanently crippled by the City of Tucson’s budget proposals to double a $1 per night surcharge on overnight stays and reduce the percentage of money raised by the current bed tax that goes to the Metropolitan Tucson Convention and Visitors Bureau to promote tourism.

If the proposals by City Manager Mike Letcher are ultimately approved by the City Council, it would put the tax rate visitors on a typical hotel room at 15.8 percent. Jonathan Walker, president and CEO of the MTCVB, says that is higher than the tax rate at most competing destinations, putting Tucson at a competitive disadvantage.

The national average bed tax on an overnight lodging stay is 12.6 percent, according to research done last year by the American Hotel & Lodging Association. And it hasn’t been increasing very rapidly. In 2003 it was 12.4 percent.

 

Separate research done of the top 50 business destinations — Tucson is not one of them — by the National Business Travel Association found lodging taxes ranged from a low of 9 percent in Las Vegas to 17.2 percent in Nashville, with an average of 13.5 percent. Just four cities on the business list have additional surcharges: San Jose, Calif., New Orleans, New York and Nashville.

While city officials defend the proposed changes as an alternative to other service cuts, local industry leaders say they are counter-productive when the city’s own records show that revenues from the taxes has fallen for each of the last three years.

“There’s smoke and mirrors going on,” said Brian Johnson, managing director of Loews Ventana Canyon Resort. 

In 2003, the city increased the bed tax — officially called the transient occupancy tax — to 6 percent, from 4 percent. Under a state law that took effect in 1990, that added tax of 2 percent must go for the promotion of tourism. But in Tucson’s case, the city made a 10-year agreement with the MTCVB that a higher amount — what amounts to a 2.7 percent tax — would go to the MTCVB’s efforts to promote tourism. Using the city’s estimates at the time, that difference amounted to $805,000 in 2004.

Now, the city wants to renege on the agreement and take that extra 0.7 percent tax back. But to make up for it, City Manager Mike Letcher has proposed doubling the $1 per night surcharge on lodging stays and then splitting that revenue between the MTCVB and the Tucson Pima Arts Council. Letcher estimates the additional $1 nightly surcharge would bring in $1.8 million in annual revenue.

But that increased surcharge amounts to an additional tax of 1.7 percent on the $116.60 that Kimberly Schmitz, director of communications for the MTCVB, says is the 2009 year-to-date average nightly room rate. That rate, combined with the state’s sales tax of 5.6 percent, Pima County’s transportation sales tax of 0.5 percent, the city’s 2 percent sales tax and the 6 percent bed tax would put the total tax rate on an overnight lodging stay at 15.8 percent — bringing the total price for that $116.60 a night room to $135.02.

“It would put the city hotels in a non-competitive environment,” said Bill Petrella, general manager of the Westin La Paloma Resort & Spa.

Although the increases wouldn’t directly affect his resort, Petrella is also president of the Southern Arizona Lodging and Resort Association and said he’s more concerned about the effect it will have on smaller hotels as well as large group travelers and convention planners who may instead look to competing destinations.

“I’d want them going to another property in Tucson rather than another market,” he said.

At least one member of the council hears that argument. “I am weary of any new taxes or fees that will put Tucson at a competitive disadvantage with other areas of the state,” said City Councilman Rodney Glassman in an e-mail.

Council members also need to know that it’s a misconception to think the increased taxes would be something that only affects tourists who come in from out-of-town.

Wade Hossman, general manager of the Hyatt Place at Tucson International Airport, said the declining numbers of tourists directly translates into jobs lost. “The easiest thing to do is cut the payroll,” he said. “A hotel’s single biggest controllable expense is labor.”

And city revenues are already down from tourism. Schmitz points out the year-to-date average nightly hotel room rate of $116.60 is down 6.6 percent from last year’s average rate of $124.82.

The MTCVB’s Walker says he’s trying to convince the council members not to punish the tourism industry with these changes but to see it as a revenue center.

“This is an industry that creates dollars for the community, and not just in bed taxes. Tens of millions of dollars come in each year to other local businesses that goes to pay for the needed services we have,” Walker said.

Tom Tracy, board member of the Arizona Hotel and Lodging Association, called the city’s proposal, “Economics 101 on how to destroy an industry. It’s not that the bureau or hotel community doesn’t want to participate in the austerity needs of the community, we already have a contract that’s indexed (to economic conditions).”

The city council is next scheduled to discuss the proposals on June 9.

Lodging tax rates

These are the combined tax rates for an overnight lodging stay in Tucson and some competitive cities.

San Antonio 16.8%

New York 16.8%*

Chicago  15.4%

Kansas City 15.2%

Austin 15.0%

Denver 14.9%

Tucson 14.1%*

San Francisco 14.1%

Los Angeles 14.1%

Phoenix 13.3%

Albuquerque 12.9%

Portland, Ore. 12.5%

San Diego 12.1%

Sacramento 12.1%

Salt Lake City 11.6%

San Jose, Calif. 11.4%*

Las Vegas 9.0%

* Rate is the effective nightly tax rate on an an average-priced room in the market, including a surcharge. The surcharges are San Jose $1.38 per night, Tucson $1 per night and New York $3.50 per night.

Source: National Business Travel Association for all cities, except Tucson.

Contact Brian Mori at edior@azbiz.com or at 295-4201. Mori is a University of Arizona intern.

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