Where Are State Travel Taxes the Highest?

State and local politicians would rather avoid raising taxes on locals who can boot them out of office, but they also know that tourists can still “vote with their feet” and go where taxes are lower.
March 28, 2013

By Pamela M. Prah

Travelers who feel nickeled and dimed by the extra fees the airlines impose should check their tabs for additional taxes from states and cities that they visit.

Visitors to Fort Lauderdale and Honolulu, for example, typically spend about $22 a day on extra taxes on hotels, meals and rental cars. But that’s far less than if they went to Chicago, where state and local hospitality taxes total more than $40 a day, according to a report from the Global Business Travel Association, a trade group.

Even staying in Las Vegas and Washington, D.C. is cheaper than Chicago’s combined 16 percent tax on a hotel room and 20 percent tax on a car rental, the association’s data show.

Travel is big business for states. Florida visitors, for instance, spent nearly $67 billion in 2010, the latest information available, and generated nearly $10 billion to federal, state and local governments, according to new state-by-state figures from the U.S. Travel Association, a trade group.

States welcomed a record number of foreign visitors in 2012, federal data show, with New York, California and Florida the top destinations.

Taxing tourists can be a dicey dilemma, though. State and local politicians would rather avoid raising taxes on locals who can boot them out of office, but they also know that tourists can still “vote with their feet” and go where taxes are lower, said Erica Michel of the National Conference of State Legislatures. In the early 1990s, she said, convention planners boycotted New York City when its taxes on hotel rooms exceeded 21 percent, she said. Today the rate is 14.75 percent, she said.

Connecticut Tops in State Lodging Taxes

California taxes a lot of things, but surprisingly not lodgers. The state joins Alaska as the only two states that lack specific state lodging taxes and do not impose state sales tax on lodging, NCSL says. California does allow cities to add their own lodging tax for hotel stays, but exempts lodging from the state sales tax. Visitors to Los Angeles, for example, see a 15.50 percent tax on their bill because of local taxes.

Alaska, which doesn’t have a state sales tax, also allows cities to add their own lodging taxes. So visitors to Denali will see a 7 percent tax, while those going to Anchorage are charged 12 percent when they check out, according to a 2013 report from the American Hotel & Lodging Educational Foundation, which conducts research on behalf of the U.S. hotels industry.

Five states, however, ban cities from attaching an additional local tax on accommodations on top of the sales tax. State laws in Connecticut, Delaware, Hawaii, Maine and New Hampshire block these extra local taxes, according to NCSL’s list of state-by-state lodging taxes.

Nevada doesn’t impose a state tax on lodging, but it requires incorporated cities to levy at least a 1 percent local tax on lodging. In Las Vegas it’s 2 percent.

Some states levy a specific state lodging in lieu of the state sales, such as Alabama; others apply the state sales tax for lodging, and some states do both, applying both a state sales tax and a state lodging tax, like Idaho and Rhode Island, NCSL said.

Connecticut has the highest state lodging tax at 15 percent, followed by Hawaii at 9.25 percent. However, since neither of these states allows cities to impose additional local taxes, extra charges on the typical hotel stay in those two states actually costs less than other states that allow localities to levy their own taxes.

Taxes on Rental Cars Triple

The taxes on lodging and cars aren’t new, but tight budgets have made both an easy source of extra revenue. The number of U.S. car rental excise taxes has more than tripled during the past 15 years or so, costing car rental customers more than $7.5 billion, according to Enterprise Holdings, which includes Alamo Rent A Car, Enterprise Rent-A-Car and National Car Rental brands.

Again, Chicago hits visitors the hardest, with the highest rental car tax that costs drivers $13.95 in taxes on a typical $55.99 daily car rental. But Boston isn’t that far behind with a daily tax rate of $13.50, according to Global Business Travel Association figures. In Columbus, the rate would be $3.78 a day.

In most cities, the state sales tax applies to meals, but here, too, localities can add an additional tax. Visitors to Washington, D.C., for example, will pay the 5 percent sales tax on their restaurant meals, but also an additional 4 percent meal tax, adding $9.12 to a typical day of meals while traveling.

A single day of meals while staying in Minneapolis carry the heftiest extra taxes, adding nearly $10 to the average $91.22 the association figures a typical business traveler spends on meals in one day.

The travel industry complains that these extra fees often fund special projects and programs that have nothing to do with travel or renting a car. Among the extra taxes in Chicago is a 2 percent tax to help pay for the Chicago White Sox stadium, while New Orleans visitors typically pay $4 a day on their hotel bill to help pay off the Superdome debt.

The tax is more palatable if the money is targeted to boosting travel. When Connecticut increased the state room occupancy tax in 2011 to 15 percent from 12 percent, the state went from having just one dollar devoted to tourism to $15 million after diverting much of that increase to tourism issues. That total dropped last year to $9.2 million when some of the tourism tax money went to balance the budget, according to Ginny Kozlowski executive director of the Connecticut Lodging Association in North Haven.

Hawaii is currently debating increasing its state lodging tax by 2 percent to 11.25 percent, a move the Hawaii Tourism Authority has estimated would cost each tourist an extra $50 per visit, KHON reported. Virginia added a 3 percent hotel tax to existing hotels in the Northern Virginia area as part of a transportation bill, but the governor has reduced it to 2 percent and the measure is pending.

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