Leading Meeting Professionals

Professional Convention Management Association

August 2012

CMP Series: Bed Tax and Spend

By Corrie Dosh
of the legislature, volatile.  They can always be cut back,” Staples said.  “To them, it’s ‘found money,’ and they don’t get what we do.”

Without those funds, however, Visit Spokane wouldn't be able to provide additional wayfinding services for attendees, host the Visit Spokane website, and offer brochures, among other complimentary services that planners have come to expect from the CVB.  “[Planners] forget that it’s free to you,” Staples said, adding that it’s difficult for them to understand what revenues fund particular services, because every state has its own unique policy on the use of room taxes. 

In Sacramento’s case, revenue from the main room tax called the transient occupancy tax - is forwarded to the city’s general fund, and then allocated to the CVB for a variety of convention services, to local special-event organizers, to the Sacramento Community Theater, and to the city’s police and fire departments, Hammond said, to “ensure that Sacramento continues its high-level execution of clean and safe programs for our visitors.”

The San Diego CVB fares even worse.  “Transient occupancy taxes were put in place for marketing.  They were actually to promote tourism to cities, states, and communities - and then they morphed into something else,” Terzi said.  “They morphed into opportunities for general funds.  Right now, our 10.5[-percent] transient occupancy tax goes all to the city, right into the general fund, and none of it is spent on tourism promotion.  It’s the same in a lot of cities, where there have been economic challenges.”

Cities and states have become dependent on occupancy taxes for general revenues, Terzi said, and can no longer afford to pay for projects like convention centers or business development.  “You’ll see expansions happening with partnerships and private sources of funding, because it’s the only way it will get done - not unlike building stadiums,” Terzi said.  “It has to be a different funding model.  There has to be other sources of income, because these municipalities just don’t have the capacity to do it anymore.”

Why Destinations Need More

Because of a state’s or city’s “sticky fingers” on occupancy- and sales-tax revenues, Staples said, destinations use special assessments to fund local projects and tourism marketing.  These assessments typically are voted on by the community and entail specific requirements on what the money can be used for. 

In Boise, Idaho, a 6-percent sales tax and a 2-percent travel and convention tax on hotel rooms are remitted to the state for distribution, according to Patrick D.  Rice, executive director of the Boise Centre and the Greater Boise Auditorium District (GBAD) - which also levies a 5-percent “auditorium tax” on hotel rooms in the area to fund a pro- posed expansion of Boise Centre.  With a total tax charge of 13 percent on area hotel rooms, Rice said, Boise is in the “lower- third tax costs of destination cities.”

Without the auditorium tax, which is capped at 5 percent by state law, an expansion of the center probably wouldn't happen, because “auditorium districts in Idaho have no authority over other taxes,” Rice said.  He added: “The funds for the district can be used for any statutory purpose, including our expansion plans and other costs associated with the district or Boise Centre.  The current GBAD board of directors has specifically designated $9 million, and other future funds for investing, to be used for an expansion.  Other funds are used to support the capital expenditures and other projects for the Boise Centre.”

But is a special assessment the answer? GBAD thinks so.  Separate studies by PricewaterhouseCoopers and consulting firm Conventions, Sports & Leisure International indicate that doubling Boise Centre’s 50,000 square feet of avail- able exhibit space and adding ballroom and meeting-room capacity, Rice said, would make the city more competitive as a second-tier destination for meetings and conventions.  “The Boise Centre currently competes for 20 percent of the convention market,” Rice said.  “An expansion would not only provide room for larger conventions - up to 60 percent of the convention market - but also allow for multiple events that cannot currently be accommodated in Boise Centre alone.  The expansion is important to help economic development.”

How to Come to Terms With This

Once planners understand the role that special assessments play in funding infrastructure projects and vital services, CVB leaders says, they’re often very supportive.  So it’s a bureau’s responsibility to make sure the message gets out.  The San Diego CVB plans a comprehensive marketing campaign about the convention-center expansion now that the new tax has been approved.  “Once [the new assessment] is set, there is some work to be done in how we position it,” Terzi said.  “Meeting planners generally get it.  We look very closely at where San Diego falls with most of the major cities around the country - which bounce between 14 and 18 per- cent overall [in hospitality and tourism taxes] once you add it all up.  We’re in the ballpark.  We’re not more expensive than most of our competitors.”

Terzi said he also would remind planners of his bureau’s advocacy on behalf of the industry in two failed proposals to increase the transient occupancy tax since 2004.  (The first tax increase was opposed by the CVB because the money wouldn't go directly back to tourism infrastructure, and it failed.  The second increase was backed by the CVB because it would fund tourism infrastructure - but it failed as well.) “We have to have enough money to be competitive,” Terzi said.  “It’s big business, and I think the industry recognizes it wants to control its own destiny.”

Planners say they do support these assessments and the projects they fund - as long as they’re able to prepare their attendees for the extra expense in advance.  “Some planners want everything free, but I know the hotels and convention centers are not a favor factory,” said ABA’s Hageb.  “They are there to make money - but they can’t be greedy about it.”

INTA’s Ruff said it’s essential to inform attendees of the total cost of the room before an event, to avoid any unwelcome surprises during checkout.  “We always list the taxes that are on top of our hotel rates, so that our attendees do not have sticker shock at checkout,” Ruff said.  “As an experienced planner, I know all too well that a $159 rate can really mean $200-plus a night, and I do feel that we have the ethical responsibility to communicate, in advance, the total per- night spend one can estimate.”

Bed taxes may be annoying, Ruff said, but planners better get used to them, because they’re here to stay.  So meet the challenge head on, partner with CVBs and DMOs from the start - and be proactive in asking questions about taxes and getting clarification for “true responsibility in budgeting for attendees.” Ruff said: “I’m fortunate to have a good relation- ship with the CVB in the destinations I go to.  That’s the first place I go.  It’s one-stop shopping on tax issues.”

Planners may even successfully use taxes as a negotiation point, as Hageb did with his upcoming convention in San Juan.  After he complained about the excessive fees and assessments,

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