Policy Documents

Research & Commentary: North Carolina Hotel Occupancy Taxes

August 8, 2014

Several counties in North Carolina are pushing to increase their hotel occupancy taxes up to the state maximum of 6 percent. Most of the counties say they will use the new revenue to promote tourism. Increasing tourism taxes such as those on hotel rooms has become increasingly popular with state and local governments looking for additional revenue, because such taxes are thought to burden out-of-state visitors, people who are unlikely to complain or vote against them. 

Business leaders in Wilson County were able to convince state lawmakers to hold off a measure that would have increased the county occupancy tax from 3 to 6 percent. In a letter to the legislature, the Asian American Hotel Owners Association voiced its strong opposition to the tax hike effort: “North Carolina proudly identifies itself as a ‘pro small-business’ state. Please do not follow the poor example of other states who tax and tax and tax, ultimately sending business owners looking for better locations to engage in free enterprise.” 

A similar measure being considered in Haywood County would raise the tax from 4 percent to the maximum 6 percent. The average occupancy tax rate in the southeast is currently 4 percent, so any increase in the county’s tax rate would make it less competitive for tourism. 

In a report on the tax increase, Sarah Curry, director of fiscal policy studies at the John Locke Foundation (JLF), argues the tax increase is simply a cash grab unlikely to benefit tourism. “Those pushing for the tax increase argue that more money collected through the occupancy tax means more money for promoting and marketing the county,” said Curry. “In reality, it just means county government would take more money away from businesses and consumers to be spent in a way government officials have decided is best for them.” 

According to JLF, the existing occupancy tax in Haywood County raised $954,996 in revenue during the most recent fiscal year; supporters of the hike estimate the increased rate would raise an additional $540,000 in 2014–15, for a total tax collection of approximately $1.5 million. JLF notes that although much of the benefit of the tax would be in high tourist areas, the whole county’s hotel industry would pay for it. Although neither of these proposals has passed, more such measures are expected in the next year. 

The tourism industry is especially vulnerable to tax hikes, since it is highly competitive; with the availability of online travel purchasing, consumers can easily choose between different destinations based on costs. Any county increasing its occupancy tax rate risks making itself less competitive than its regional or in-state neighbors. 

Any revenue created by the increased tax and captured by the government is money not used elsewhere, at local businesses, attractions, or restaurants. Encouraging tourism is not an appropriate use of tax dollars, and more importantly, increasing occupancy taxes can harm the overall economy. State legislators should consider efforts to limit or reduce these taxes. 

The following articles examine occupancy and tourism taxes from multiple perspectives.

Ten Principles of State Fiscal Policy
http://heartland.org/policy-documents/ten-principles-state-fiscal-policy 
The Heartland Institute provides policymakers and civic and business leaders a highly condensed, easy-to-read guide to state fiscal policy principles. The principles range from “Above all else: Keep taxes low” to “Protect state employees from politics.” 

An Occupancy Tax Increase? Haywood County Already Has a Million Dollars Annually from Existing Tax
http://heartland.org/policy-documents/occupancy-tax-increase-haywood-county-already-has-million-dollars-annually-existing
The John Locke Foundation argues Haywood County would place its local hospitality businesses at a competitive disadvantage against those in surrounding counties, if local and state officials agree to raise the county’s occupancy tax rate by 50 percent. The report also questions Haywood’s need for additional tax revenue and the process county officials would use to raise the tax rate. 

Haywood Would Create New Hurdle for Local Businesses with 50 Percent Tax Hike
http://www.johnlocke.org/press_releases/show/732
Sarah Curry argues the occupancy tax hike proposed for Haywood County is unnecessary. “Taxation is justified only to raise money for necessary purposes of government,” she writes. “Tourism promotion does not meet that standard. It focuses on helping one sector of the local economy. This function can be served best by the private sector.” 

Occupancy Tax Supporters Hold Out Hope
http://www.smokymountainnews.com/news/item/12682-occupancy-tax-supporters-hold-out-hope
Becky Johnson of the Smoky Mountain News reports on support for the increased occupancy tax in Haywood County: “Town and county leaders have implored state legislators to green light a tourism tax increase since this time last year. Hiking the tax on overnight lodging from 4 cents to 6 cents would bring in half a million extra dollars a year for tourism coffers and would be  earmarked for building or expanding tourism attractions.” 

A Profile of North Carolina Occupancy Taxes and Their Allocation
http://heartland.org/policy-documents/profile-north-carolina-occupancy-taxes-and-their-allocation
The Magellan Strategy Group takes an in-depth look at the various occupancy taxes charged in North Carolina. 

Research & Commentary: The Damaging Effects of Tourism Taxes
http://heartland.org/policy-documents/research-commentary-damaging-effects-tourism-taxes
Heartland Institute Government Relations Director John Nothdurft documents the harm done by tourism taxes. He writes, “in order to promote tourism as part of a strong state or local economy and have a stable budget, it is vital to create a non-distorting tax code with low rates and a broad base, coupled with spending reforms.” 

Expert: Tourism-Targeted Taxes Are Harmful
http://heartland.org/policy-documents/expert-tourism-targeted-taxes-are-harmful
A pattern in recent years of ever-increasing taxes on travel-centric services and entertainment—such as rental cars, lodging, restaurants, and amusement park admissions and parking—could have a damaging effect on tourism in the coming years, writes John Nothdurft of The Heartland Institute.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News Web site at http://news.heartland.org/fiscal, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or mglans@heartland.org.