Taxing away customers

A recent issue of the Wall Street Journal's MIddle Seat column revisited an old travel industry bug-bear: tourism taxation. Entitled " The Best and Worst U.S. Cities  for Travel Taxes" starts off by noting the obvious (to all except local politicians) that "Travel is one of the most heavily taxed activities in the U.S., even
though most cities and towns try hard to encourage visitors and tourism."

The column notes that "Travelers don't vote where they travel, so cash-strapped cities and
states continue to push fees and taxes onto hotel rooms, rental cars and
airports. Cigarettes are about the only thing taxed more heavily among
consumer purchases."  When told about the potential negative consequences of raising taxes in the 80s the city's mayor at the time was famously dismissive saying that they were all out-of-towners.  The consequent drop in tourism vindicated those concerns. A reversal of the tax-hike by a subsequent mayor brought about a gusher of tourists.

 Legislators have notoriously short term memories when it comes to tourism taxes and use the tax for a range of allegedly economic advantageous programs including supposed "facilities for travelers, such as convention centers and
airports" as well as "help finance general coffers and pay for sports
stadiums and youth ball fields." 

The situation across the pond in the UK is not much different with the introduction last year of a ruinous (to the travel trade) hike in airline passenger duty resulting in the highest APD in the world. A group there called the Fair Tax on Flying Campaign that includes over 30 airlines and tour operators has pointed out that the high tax is
"deterring both UK holidaymakers heading abroad and foreign travelers
hoping to visit Britain."

What is worse is that often these taxes are levied with a promise of a "sunset". But the sun never sets for these extortions on tourists as New York so ably demonstrated last year when the NYC's City Council voted to extend an increase in the city's hotel tax that was set to expire last November thereby adding roughly $2 to the average daily hotel room rate. With tourism reaching record high levels they probably feel vindicated.

That, of course, does not considerthe counter-factual: numbers would have been considerably higher had the tax been allowed to sun-set. The UK's travel trade and tens of thousands of customers who altered their travel plans would probably readily attest to that.

Published by

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.

One thought on “Taxing away customers”

  1. It’s unfortunate, but many places have substituted these revenues for any direct-investment in tourism promotion or marketing. Once this system is in place, there is very little incentive for anyone to study the impact of tariffs on demand.

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