West States Add Tour Taxes

Seven states in the West now tax tourists, who also may be paying local or county levies.

By: R. Scott Macintosh

Three Western states have targeted travelers as a source of much-needed revenue, adding new taxes to the price of hotel rooms and rental cars. Montana already has started collecting the new taxes; Oregon and Alaska will start early next year.

The money is expected to help offset multimillion-dollar deficits in the three states, but it could also put a crimp in already sluggish travel as price-sensitive visitors face growing costs.

With the new levies, seven states in the West now tax tourists on top of tourism-related taxes levied at the county or local levels in all Western states.

“Tourism taxes are popular because the people who are going to pay aren’t the ones voting,” said Bill Ahern, a spokesman for Washington, D.C.-based research group, the Tax Foundation. “Because of that, states will try to extract as much as possible from non-residents.”

For Montana and Alaska, the tourism taxes will offset their lack of a sales tax and, in Alaska, an income tax. Until now, Montana has relied on capital gains and income taxes, while Alaska has steep local and property taxes.

Voter pressure spurred Montana lawmakers to overhaul the state’s tax structure this session, pushing them to cut capital gains and income taxes.

In exchange, lawmakers increased the statewide bed tax by 3 percent, bringing the total to 7 percent, and levied a new 4 percent car rental tax.

While a $250 million deficit will postpone the tax cuts until 2005, the tourism taxes took effect in July and are expected to contribute $11 million to the state’s general revenue this fiscal year.

“We’re not asking out-of-towners to shoulder the burden, but we are asking them to help a little,” said Betsy Baumgart, division administrator with the Montana Promotion Division.

Alaska will also start taxing rental cars with a new 10 percent tax and a 3 percent tax on RVs.

The taxes are expected to generate $6 million a year for the state’s general fund. Some of the tax money will be used to offset the cost of tourism promotion and new infrastructure.

Cruise Tax Sought

Alaska, which has a $400 million deficit, has long considered taxes on tourists, and a citizens’ initiative is seeking a vote next year on taxing cruise passengers and ship casino revenues.

The group’s petition to have the proposal placed on a state ballot has so far been rejected by state officials.

“It shows up every single year,” said Caryl McConkie, a tourism manager for the Alaska Division of Community and Business Development. “It’s very difficult to pass legal muster and then also to get the support. It’s something we talk about every year but we’re unlikely to see happen.”

What’s more likely to pass, according to McConkie, is a statewide sales tax, and a $15 charge for a “wildlife viewing pass” to help promote wildlife education and conservation.

In Oregon, lawmakers approved a 1 percent hotel tax expected to raise about $7 million a year. About 70 percent of the tax will be used to promote tourism, nearly doubling the current budget, which is one of the lowest in the country. The remaining 30 percent would be split for city and county programs. The tax takes effect Jan. 1 and is also expected to revive the state’s tourism sector, which has lost 1,100 jobs in the past year.

Lodging taxes are currently added to the hotel bills in 14 state counties and average about 8 percent, according to state tourism officials.

Lodging Taxes

Texas, Idaho and Hawaii each have statewide lodging taxes, all of which help fund tourism promotions. Utah has a statewide car rental tax used to fund future highway right-of-way purchases.

Hawaii’s 7.25 percent hotel tax generates $170 million in revenues to help fund the state’s four county government and tourism marketing projects.

Eight percent of a lodging tax collected in Texas goes to promote tourism, totaling $20 million. The rest is added to the state’s general revenues. But over-reliance can have drawbacks, according to Alex Nikoloff, a research specialist at Michigan State University’s Tourism Resource Center.

Revenues from such taxes are predicated on visitors, he said, noting that, “After September 11, a lot of cities couldn’t pay the bills because they relied too much on tourists.” "