Taxing Tourism…

Dale J. Venturini
President/CEO, RI Hospitality Association

The hospitality and tourism industry continues to be a vital economic driver in Rhode Island’s economy, providing millions of dollars annually from hotel and food and beverage taxes alone. As the state continues to look at ways to raise funding, the hotel tax has recently come to the forefront. Rhode Island currently has a 13% hotel tax, which includes the 7% sales tax, a 5% state hotel tax and a 1% local hotel tax. Governor Gina Raimondo’s newly-proposed budget calls for an increase to the state hotel tax, raising it to 6%, with the additional generated revenue going directly to the general fund, instead of tourism funding. This would bring our hotel tax to a total of 14%. The Rhode Island Hospitality Association (RIHA) opposes the proposed legislation for multiple reasons, particularly because an increased hotel tax will lead to lost business and fewer large-scale conferences and visitors.

If RI’s hotel tax rises to 6%, we will be higher than neighboring states. Meeting planners consider hotel tax rates when choosing a city or state for their event, and even though a 1% increase may seem small, the cost adds up when the company is looking to book large blocks of hotel space for their customers and employees. Typically, business travelers and those charged with booking accommodations for clients and staff members consider hotel tax rates when choosing a location for room nights, as their priority is to find the best deal available. According to the National Business Travel Association’s 2009 study on travel taxes, “Cities, states, or counties with the highest discriminatory travel taxes are likely losing business...” The report states that, “more and more organizations that host meetings and major conventions are considering the tax burden for their attendees as a factor in the site-selection process.”

Unfortunately, this inevitable decrease in business and visitor spending will trickle down into the workforce, resulting in fewer hotel tourism jobs across Rhode Island.

Additionally, RIHA strongly objects to any proposed tax revenue being earmarked to the state’s general fund. We believe that if the legislation does pass, that money should be used to market Rhode Island’s hospitality and tourism industry. According to a 2010 informational paper produced by the International Society of Hotel Association Executives (ISHAE) Lodging Tax Task Force, “The concept of imposing a lodging tax on the overnight guests staying at a lodging property was to have the traveler pay part of the cost of attracting them to the area to stay overnight, and for funding services uniquely for travelers.” The hotel tax serves as a primer for other taxes. Investing more of the revenue from the hotel tax into tourism promotion would result in greater visitor spending, which in turn would generate more revenue from state and local sales tax, produce jobs from which income tax is paid, and prompt the development of new hotels that pay property tax.

The hospitality industry consistently generates hundreds of millions of dollars for the state. In FY 2018, the Meals and Beverage Tax generated $28.9 million for municipalities and $202.3 million in sales tax. The local 1% hotel tax generated $5.07 million for municipalities. The 5% state hotel tax generated $25.35 million and the 7% sales tax generated $35.49 million which already goes directly into the state’s general fund. These numbers do not include the incredible amount of property tax shouldered by the industry, but particularly the hotels, which oftentimes pay the highest amount of tax in a municipality. This also does not take into account the financial impact to the 85,000 people employed by the industry.

If you have any questions about the proposed hotel tax increase, please reach out to us at 401-223-1120.