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It’s a Fine Line

Thursday, January 19 2017

To paraphrase the Persuaders (and the Pretenders' sensational cover), it’s a fine line between legal and not. And, sad to say, we’re seeing a lot more utilization of Hotel Occupancy Tax on pet projects and questionable investments than ever before.

Despite being told once by a legislator, “I don’t give a damn about original intent,” let’s be clear here: The intent of Room Tax has always been to increase visitation to a destination. It’s why, in many cases, the hotel and lodging community supported (or, at least chose not to oppose) the imposition of the tax in the first place. If invested properly, it would serve to increase their business.

And, initial enabling State legislation underscored this original intent. When Room Tax was authorized in Illinois in the early ‘80s, the statute consumed all of two sentences. Revenues from the tax were to be used for the promotion of tourism. Period.

Over the years, of course, lawmakers couldn’t resist the temptation to divert a little revenue here and a little more there. Today, Florida law allows the parsing of revenues into a myriad of directions (e.g., 25% of the fifth penny to an aquatic center, 30% of the first penny to Beach Renourishment, 50% of the second penny to the Arts, etc.). Texas statutes allow the utilization of Room Tax for the arts, heritage and convention center and sports complex construction based upon a dizzying number of qualifiers based on population and intended use.

And, if there are exceptions to a rule, there will be attorneys and politicians that will find ways around them. To whit:

A city recently awarded a $20,000 grant to assist a local Country Club to replace their swimming pool. The rationale: the Country Club allows visitors to the community to use its pool. The reality: not a single consumer will ever choose to visit a community based on the availability of a Country Club swimming pool.

Another city invests $1 million of Room Tax each year into an urban park that is home to a handful of “historic” structures. The rationale: State law allows up to half of HOT collections to support heritage sites if they attract visitors. The reality: Hoteliers can only confirm a couple hundred room nights each year from a Bluegrass festival held on the grounds (but, that is apparently close enough for the city attorney).

Another City used a portion of its Room Tax collections to plant and maintain flowers (annuals, no less) in the medians of the arteries in and out of town. The rationale: a more aesthetically pleasing appearance would encourage visitation. The reality: without an attraction in its downtown, no amount of flowers will ever increase visitation.

This same City also utilized Room Tax to fund a start-up Farmers Market…staged on (are you ready?) Wednesday afternoons. The rational: The Market was to be held in the parking lot of its largest hotel, thus encouraging overnight stays. The reality: the availability of fresh vegetables on a weekday would never result in the rental of a hotel room. Ever.

And, then there is the town that used Room Tax to purchase a hook and ladder fire truck. The rationale: The Mayor wanted to attract a Hampton Inn…and, as Hamptons are multi-story affairs, they’ll only locate in towns that possess the tools to fight a fire in a structure that tall. The reality: Well…OK. That actually makes a little sense, as odd as it initially sounds.

The point is, Room Tax revenues are a priceless resource to drive a region’s economy through the attraction of visitor spending. To play fast and loose with the intent of the law is to forfeit the power of a sensational tool for economic development in the interests of placating special interests or powering pet projects.

When I challenged one Mayor over his donation of Room Tax revenue to a sensationally questionable project, he actually winked and said, “Son, we both know that Room Tax is funny money.”

I asked him whether, if Hotel Taxes were found unconstitutional tomorrow, he would fund that same project with General Fund revenues. “Oh, hell no,” he said. “I’d never get re-elected.”

And, that should be at least one of the tests for all non-tourism related uses of Room Tax. If it’s not important enough to use General Fund money, Hotel Taxes shouldn’t be the alternate answer.

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