by Scott McCartney
In Chicago, the tax on a case of
Miller Lite beer runs about 9%. That pales in comparison with the 16.4% tax on
a hotel room and the 23% tax on car rentals at O'Hare International Airport.
Travel is one of the most heavily
taxed activities in the U.S., even though most cities and towns try hard to
encourage visitors and tourism. Travelers don't vote where they travel, so
cash-strapped cities and states continue to push fees and taxes onto hotel
rooms, rental cars and airports. Cigarettes are about the only thing taxed more
heavily among consumer purchases.
Often the money is used not only
to build and run facilities for travelers, such as convention centers and
airports, but also to help finance general coffers and pay for sports stadiums
and youth ball fields. In some cities, taxes on visitors help fund arts
facilities and school systems, according to a study published last month by the
Global Business Travel Association, a trade and lobbying group for corporate
travel managers.
The impact can be significant:
GBTA said travelers pay taxes that total, on average, 57% more than if they
just paid the normal general sales tax.
Car-rental companies and airlines
say heavy taxes on their services damp demand. With rental cars, some
consumers, particularly leisure travelers, are discouraged from travel or opt
for smaller cars to hold down the price of a rental, where taxes can sometimes
exceed the car cost.
"Taxes clearly have an
impact on consumer behavior," said Richard Broome, spokesman for Hertz
Corp.
A survey last year by the U.S.
Travel Association, a nonprofit industry group, found 49% of respondents had
altered plans because of high travel taxes, such as by staying in
less-expensive hotels and spending less on shopping and entertainment. Ten
percent of people surveyed said they had changed city choices for trips because
of taxes.
Travelers in some destinations
can reduce some of the tax outlay by booking hotels outside of city centers,
renting cars at non-airport locations and taking meals away from airports and
hotel restaurants. However, the savings would usually be marginal and more
trouble than they are worth.
Among major destinations, the tax
on a day's travel spending can range from as little as $22.21 in Fort
Lauderdale, Fort Myers and West Palm Beach, Fla., to as much as $40.31 in
Chicago, GBTA found. That is calculated by keeping the cost of hotels, car
rentals and meals the same in each city so the difference reflects the tax
structure, not higher or lower travel costs. Some cities that depend heavily on
tourists, such as Honolulu and Orlando, avoid imposing too many taxes on
visitors.
Car-rental companies have fought
local proposals to raise taxes on rentals, narrowly losing an effort in June to
stop an 11% increase on car rentals in San Mateo County, Calif., at the San
Francisco International Airport. "It seems like increasing travel taxes is
one of the first places local politicians go when they need revenue," said
Mr. Broome.
Airlines say taxes have a
significant impact on air travel because they raise ticket prices so substantially.
High prices deter buying and airline tickets are taxed at levels similar to
alcohol and cigarettes, where the government imposes taxes to discourage use.
There are a total of 17 potential
different taxes and fees levied by the federal government and airports on
airline tickets. Passengers pay a federal excise tax to help fund the Federal
Aviation Administration, a security fee to help fund the Transportation
Security Administration, various fees for international inspections and fees
charged by airports for passing through terminals.
On a typical $300 domestic ticket
with one connection, the airline fare is really $238.88 and taxes and airport
fees are $61.12—more than 20% of the $300 cost comprises taxes and government
fees. By comparison, a pack of cigarettes that costs roughly $12 in Chicago has
$5.67 in federal, state, county and city taxes, or about 47% of the cost.
This year the Department of
Transportation began forcing airlines to include taxes in any price quote for
airline tickets. Under pressure from consumers to show full prices, rental-car
companies began including taxes prominently when people book reservations,
showing an estimated total price for each rental. Hotel companies are starting
to display taxes more clearly: Marriott includes taxes in hotel price quotes
when customers are asked for name, address and credit card.
Yet hotel companies say higher
taxes don't have a big effect on bookings. That is one reason the taxes keep
coming: Cities, counties and states have so far been able to raise more money
without crimping business or angering local voters.
"We really don't see an
impact on business due to hotel taxes," said Marriott spokeswoman Laurie
Goldstein.
When Chicago raised its portion
of the hotel tax to 4.5% from 3.5% earlier this year, Mayor Rahm Emanuel
predicted continued increases in tourism—and so far he appears to be correct.
Chicago hotel occupancy rates are up slightly so far this year, according to
Smith Travel Research. The tax increase "will help increase revenue that
supports tourism, not deters it," the mayor said in a statement at the
time. The city didn't respond to requests for additional comment.
The hotel-tax increase in
Chicago, which had the highest total tax burden for travelers of any city in
the survey, raised the total hotel levy there to 16.4%. That includes a 2% tax
to help pay for the Chicago White Sox stadium, 2.5% to help pay for the
McCormick Place convention center and state taxes as well. Chicago's rental-car
tax is even higher. The tax on a $56, one-day car rental at the airport raises
the cost by 23%.
