Occupancy taxes and occupancy

Orlando has gone ahead with its proposal (remarked upon earlier here) to raise occupancy taxes by a penny. The extra cent is expected to raise $900 million over 25 years and is meant to address a wish list that includes a new arts center, arean and Citrus bowl overhaul with supposedly half of the proceeds raised going towards tourism marketing expected to amount to $19 miiion per year. The last part was obviously to win over hospitality industry leaders who have been watching uneasily as occupancies have dropped in the Orlando area.

The empirical evidence on occupancy tax raises is mixed at best but notably, New York’s tax cut in 1994 inarguably was followed by a surge in economic activity that lasted through the first quarter of 2001. While there are many factors such as safety and range of activities that are at play in determining the attractiveness of a destination, Hawaii’s former governor, Ben Cayetano was surely wrong in declaring that people going to San Francisco (as an example) do not ask what the tax is. That precisely is the question asked by meeting and event planners who decide on destinations. Orlando’s calculus in arriving at the $900 million over 25 years is, as yet, not clear but if it is a linear projection, it is seriously flawed. Regardless, any projection of revenues – even for a state – for such a long period of time for socking it to “outsiders” does a signal disservice to the industry. Insiders in the industry in Orlando may salivate at the “marketing” dollars suddenly available but it may well be founded on sand. Outsiders are fickle and with competing locales, Orlando may well have shot itself in the foot with its tax increase.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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