Thomson: Tourism Tax Can Cut Two Ways

Tourism Tax Can Cut Two Ways

Rod Thomson

Executive Editor

Competition for the tourism dollar is heating up along the Gulf Coast, and so is the push for an ever-expanding government role in promoting and supporting tourism.

The rationale is easy to understand, but the results can boomerang.

Tourism remains a primary economic pillar for Gulf Coast communities. Tourists spend more than $2 billion annually between Tampa Bay and Naples just on official items hit by the tourist tax levy, primarily hotel rooms. Tourism, combined with the construction industry and real estate, form the basis of much of our economy.

A downtick in tourism is felt not just by hotels, but by restaurants, convenience stores and the entire array of support services. Plus, some of today's tourists will be tomorrow's residents, thus fueling the construction and real estate industries.

But many factors are altering the tourist terrain. Hurricanes, land prices, conversions from hotel rooms to condos, increased competition from other destinations ... even increased competition from adjoining communities.

To maintain a competitive edge, Gulf Coast counties have been increasing their tourist taxes, or bed taxes, which are levied on overnight hotel stays. The taxes range from 2% to the maximum of 5% along the Gulf Coast.

In many respects, this falls into the extraordinarily small category of a "necessary tax." The bed tax is usually levied with the consent of those collecting it; it is paid by those outside the community; and it is generally used in support of those paying and collecting.

Each county breaks it down a little differently, but the tax is basically spent to promote tourism and restore beaches. But by state law, it can also be spent on convention centers and professional sports stadiums. Because the tax brings in such a large amount of money, it has become more of a target for special interest groups. And while it may be a relatively good tax, it can be abused and wind up hurting those it is meant to help.

For instance, Sarasota County has 2 percentage points it can yet increase its tax before bumping up against the 5% state-imposed ceiling. Groups are lining up for a piece of the next point, which the Tourist Development Council is considering.

One group is the Sarasota Convention and Visitors Bureau, which wants 75% of a 1 percentage point increase to be used for promoting tourism. The bureau says the county ranks 56th out of the 57 counties that levy the tax in terms of spending on promotion because it puts less than $2 million toward advertising. In a competitive market, that becomes a compelling case, although the county puts a hefty $4 million toward beach restoration. Without beaches, there is not much to advertise.

Another group wanting a piece of the tourist tax pie includes the backers of a convention center. This is where the tax gets sticky.

Sarasota business interests have been wanting a conference center for at least 15 years. But paying for it, particularly when such facilities typically lose money and require annual subsidies from the public treasury, blocked any movement. There is virtually no political support for using property taxes for a conference center. But county commissioners could rationalize using tourist tax money for a center.

Whether they should is not so easily rationalized. First, there is the niggling concept of free markets, where government does not get involved to create something for business that businessmen themselves are not willing to provide. As stated earlier, these are money-losers. That simply means there is not an adequate market for them - or at least not one that works without government intervention.

Second, there is the real possibility that while a conference center - whether at the bay front or farther out at the fairgrounds - would help some service-sector businesses, it might hurt others.

It would require hotels nearby, and one serious proposal from St. Louis-based hotel-builder John Q. Hammons Industries ties a subsidized conference center to an adjoining 300-room hotel. That hotel, and others nearby, may well draw customers from existing hotels that are paying the tourist tax. So it is possible that current hotels would be subsidizing their own demise.

If the marketplace knocks them out, so be it. But it is no role for their government with their own tax dollars.

And finally there is the real issue of the added tax placing hotels, and thus the county, at a competitive disadvantage. That probably is not reached at 4% but must be kept in mind. An increasingly competitive tourism market, which is one reason why an increased tax is being proposed, is also a decent reason to reduce taxes to make the county more attractive to visitors.