Sky’s the Limit for Hotel Tax? Ask Icarus!

I wrote this opinion piece (op-ed) in response to an article that appeared in the Jan. 9 issue of the North Bay (California) Business Journal. It was published this week’s (Jan. 23) issue, which was delivered to my mailbox yesterday Jan. 21. (The published version appeared under an additional headline – “Visitors pay hotel tax, but at what cost locally?”)

In “Hotel tax: Sky’s the Limit?” (North Bay Business Journal, Jan. 9, 2017), Tim Zahner, Sonoma County Tourism’s chief marketing officer, was quoted as saying that the hotel tax (TOT) “doesn’t strain municipal coffers or local residents.” And Sonoma County Lodging Association president Lowell Johnson said: “It’s our opinion that people just kind of accept it, like anything else that’s taxed. They can negotiate a room rate, but the tax, whatever it is, they don’t have a choice. The vendor is just passing it along.” Johnson acknowledged though that “for professional travelers and groups, however, [the TOT is] where the rubber meets the road.”

While I’m fairly new to Sonoma County (I arrived in 2013) and am neither a tourism executive nor an economist (I’m a business writer, editor and former public relations executive), for the past 14 years I’ve edited weekly articles written by arguably the most prominent voice in Hawaii’s tourism industry, Dr. Richard Kelley, chairman emeritus of Hawaii’s largest hotel group, Outrigger Hotels & Resorts. This has given me a bit of the benefit of his vast experience and considerable insight.

So, despite the risk of being perceived as rushing in “where angels fear to tread,” I think it worth sharing some of what I’ve learned with North Bay readers. Of course there is much that differentiates the Wine Country visitor industry from Hawaii’s. Two examples: Many Sonoma and Napa visitors arrive by car, which means they’re not impelled by the cost and hassle of flying to stay as long as most visitors to Hawaii. Also, average room rates – and therefore the TOT’s cost to travelers – are lower here than in Hawaii.

Nonetheless, I offer the following wisdom – partially paraphrased and condensed – from an industry insider with whom I’ve worked closely (and who has given me permission to convey these thoughts):

What many politicians fail to see is that raising the tax burden on the visitor industry is counterproductive because it decreases hotels’ competitiveness, thus weakening the industry’s contribution to the economy and lowering overall tax revenue.
The market is very price-sensitive, and tourism is highly competitive. Unless the laws of economics have been unexpectedly repealed, if prices go up, some customers will go to less costly destinations. This is especially true of leisure travelers, who pay all costs themselves, unlike business travelers, whose expenses are either tax-deductible or paid for by their company. And most Wine Country visitors are leisure travelers.
Visitors are happy to pay local taxes like everyone else, but when it’s clear they’re being singled out and soaked – with hotel taxes, car rental taxes, etc. – it’s a big turn-off.
Politicians think they can get away with raising hotel taxes because visitors don’t vote. But they do – with their pocketbooks. And when they feel ripped off, they tell the whole world on the internet.
One Hawaii legislator said, “for the most part [the hotel tax] is exported, it is paid by people who come here. So we are trying to eliminate the hurt for our residents.” That sounds great, but in real life tax collections may actually go down, and jobs may be lost. Here’s why: Raising the hotel tax raises the cost of travel, and that lowers visitor spending. This means fewer outside dollars coming into the community, which means fewer jobs in hotels, restaurants and visitor attractions – and in the companies that provide them with goods and services. Employees of the visitor industry and its vast network of local suppliers and vendors will have less to spend at supermarkets, drug stores and everywhere else. Unemployment, bankruptcies and foreclosures will rise. Home values may fall. Local charitable organizations will receive less support. And government revenues – from all taxpayers – may fall too. That’s right – raising the hotel tax may paradoxically lead to lower total tax collections. So the “hurt” will not really be “exported” or “paid by people who come here” but felt by the very local residents the politicians want to protect.

So, is the sky the limit? Ask Icarus (the mythical Greek who flew too high and close to the sun, which melted the wax in his artificial wings, plunging him into the sea).