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MSU Tracks Travel and Tourism Taxes As They Rise Worldwide
By Alex Nikoloff, Research Specialist
The World Travel & Tourism Tax Policy Center (TPC) was established in October 1993, making it one of the Travel, Tourism and Recreation Resource Center’s (TTRRC) longest-running programs. It is unique in that it is the only TTRRC project that does not focus exclusively on Michigan travel and tourism. The TPC’s primary objectives are to track and monitor the status of taxes imposed on travelers and travel companies in high-traffic international destinations and conduct applied economic research on the impact these taxes have on the travel and tourism industry. The TPC is funded in part by the World Travel & Tourism Council, a coalition of tourism industry leaders based in London, U.K.
While an article on international tourism tax policies may seem like an unusual topic for a newsletter devoted to Michigan tourism, it is advantageous to learn more about how other localities are dealing with rising tax rates and reduced price competitiveness. And, considering the rate at which tourism-related taxes have been increasing, it probably won’t be too far in the future until tourism professionals in Michigan face a similar challenge. What is learned can help Michigan’s tourism industry cope with governments’ growing tendency to unfairly target this industry when searching for new tax revenue sources.
One of the Center’s main publications is the World Travel & Tourism Tax Barometer, an economic index report developed to track and monitor the changes in travel-related taxes in more than 50 destinations worldwide. The eleventh edition of the Tax Barometer was completed in July 2002, and what follows is a summary of some of the trends that have developed since the first edition was published in 1995.
Car Rentals:
Car rental taxes have increased in nearly 75% of all surveyed destinations since 1994. These increases range from the modest (2% in Rio de Janeiro) to the excessive (1798% in Sydney). Taxes account for over 20% of the final rental car bill in 24 destinations, while only 12 destinations collected as much in 1994. In addition to applicable state and local sales taxes, travelers can also expect to pay licensing fees, registration fees, premium location/airport access fees, road fees, snow tire fees, air conditioning fees, vehicle emission fees, and other miscellaneous taxes and surcharges, depending on where and when they rent a vehicle.
Hotels:
Nearly half of all surveyed destinations have increased their lodging tax rates since 1994. Total tax charges range from approximately $50.00 per night in Buenos Aires, Argentina, to $0.35 per night in Beijing, China. Only seven surveyed destinations have lowered their lodging tax rate since 1994, with New York City being the most notable of these; two stifling taxes were repealed in 1995 following a dramatic drop-off in convention business. Both New Delhi and Mumbai (Bombay), India, have also recently introduced significant cuts in their hotel tax rates in an attempt to stimulate the local tourist trade.
Restaurants:
Restaurants aren’t taxed nearly as much as other tourism-related sectors. Restaurant patrons generally pay local sales or value added taxes, and usually a service charge in non-U.S. destinations. Only one destination, Miami, levies an additional tax on restaurant meals, but this tax only affects restaurants located in a hotel. Overall, 23 of the 52 surveyed destinations have increased taxes on restaurant meals since 1994.
Air Passengers:
Taxes on international airline passengers have increased in 47 of the 52 surveyed destinations since 1994. Only three of the surveyed destinations—Buenos Aires, Jakarta and Vancouver—have reduced their air passenger charges over this same period. Several cities have recently increased or introduced security taxes in the wake of the September 11 attacks. The most contentious of these is Canada’s International Air Traveler’s Security Charge, a $24 fee that the Canadian tourism industry argues will produce far more revenue than is necessary to implement the proposed security measures. The industry fears the surplus revenue will wind up in the general fund.
In addition to the Tax Barometer, the TPC organized and moderates a tax policy review panel on behalf of the World Travel & Tourism Council. The World Travel & Tourism Tax Policy Task Force evaluates current tourism-related tax proposals and is comprised of policy experts from government, academia and the travel industry. The TPC recommended that the first tax proposal selected for review was one with local implications. In this case, it was a proposal put forth by the Grand Traverse County Board of Commissioners that would expand the coverage of Michigan’s Public Act 263 of 1974, the county hotel tax act.
Public Act 263 currently grants only those counties meeting specific population requirements the ability to impose a hotel tax. The proposed ammendment would eliminate these requirements and give all counties, regardless of population, the ability to enact a hotel tax at a rate of up to five percent.
The legislative intent in passing PA 263 was to create a funding mechanism for Michigan’s more populous counties to develop infrastructure and promotion programs primarily to attract convention and meeting business to these counties. The burden of the tax is on the accommodations sector, which was also presumed to be the major beneficiary of investments of tax revenues.
As our case study shows, PA 263 appeared at the outset to be an effective stimulus for tourism growth. Over the years, however, it has produced mixed results. Because the legislation does not specifically define how these tax revenues are to be used, local governments in PA 263-eligible counties have demonstrated a tendency to fund a wide range of projects and services, many of which are of questionable value to the local tourism industry. How the funds are allocated remains a constant source of bickering among different tourism interests and a wide variety of other groups seeking funding for almost any imaginable project. And, as might have been anticipated, once PA 263 revenues accrue in county treasuries, county governments are reluctant to allow tourism interests, including the accommodations sector, to dictate how they will be spent.
The Task Force voted 9-0 to oppose to proposal, agreeing that extending what is in many respects a failed tax strategy to other Michigan counties would not be a recommended course of action. The Task Force also recommended the re-examination of PA 263 to determine if a new tourism tax scheme might better serve Michigan visitors and state residents.
The Grand Traverse County Board of Commissioners has since withdrawn their proposal, but have also said they will reintroduce it at some point in the future.
For more information on the Tax Barometer, the Task Force, and other Tax Policy Center projects, please visit the TPC’s website at www.traveltax.msu.edu or contact Alex Nikoloff at (517) 432-2636.
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