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Editorial: Tacking on tourism taxes has its limits

By   /   Friday, June 15th, 2012  /   Comments Off

Too much municipal panhandling can make a community less attractive to tourists.

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Now that tourism, one of the region’s largest industries, has regained its footing, cash-starved municipalities are looking for ways to make a money grab.

The easiest thing to do is to impose a bed tax or increase an existing tax. The theory goes that in a time of cutbacks due to the state’s huge budget mess, it’s easier to tax the tourists than to get year-round residents to fork over more money for schools, roads and public safety. And for the most part, the theory works, which is why this month, Carpinteria, Solvang and other communities are taking up the hotel tax issue. However, the tourism tax theory has its limits:

• Tourism taxes are most effective where there are plenty of well-heeled tourists to tax. Smaller communities need to be careful about imposing taxes that rob profits from innkeepers. Or if the hoteliers pass the taxes along, then it is restaurants and retailers who suffer as visitors have less disposable income to spend.

• As taxes go up, returns tend to diminish. An increase in the hotel tax from 10 percent to 12 percent may not sound like a lot but it is in fact a 20 percent increase and there aren’t many businesses we know — gas stations being one big exception — that have increased prices 20 percent in the past six months.

• Marketing really drives hotel visits and therefore tax revenue. Municipalities that want to maximize their tourism traffic and hotel tax revenue have to be in front of their customers on a regular basis. Simply grabbing the increased hotel taxes and hoping for the best is not a viable strategy for the long term.

• The tourism buzz is now region-wide. Communities that never looked to tourism as a significant economic driver are now engaged in the hunt for travel dollars. Camarillo, Oxnard and Santa Paula in Ventura County are getting a bit more spring in their step when it comes to attracting visitors. Paso Robles has emerged as a major destination, forcing Morro Bay and other SLO County cities to amp up their game.

Hotel taxes can help municipalities fill some of the budget pothole. But too much municipal panhandling can make a community less attractive to tourists, especially if it doesn’t reinvest in tourist-related amenities. Tourism and tourism taxes work best as part of a broader economic development strategy that uses leisure travel to lure business travelers and, in some cases, businesses themselves.

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