News & Ramblings
Accommodation taxes – what are they and do they work?
- An accommodation tax is a tax charged to travelers, tourists, others on an overnight stay at overnight lodging within the municipality that charges the tax.
- Funds generated by the tax must go into promotion and expanding tourism within the area being taxed. Typically 50% will goto the municipality and the other 50% will go to an independent tourism, economic development organization.
- A Municipal Accommodation tax is the name given to the tax when local municipalities choose to charge the tax to lodging businesses within their borders. This usually includes any hotel, motel, bed and breakfast, cabin or other business which offers overnight/bed accommodations.
- Municipalities have only recently been given the option to charge such a tax of up to 4%. Many municipalities in the region are currently looking at or have already voted on whether to charge the tax or not.
- Lodging suppliers are responsible for keeping track and remitting the taxes to the municipality.
- The accommodation tax must be listed separately on a lodging bill for full transparency.
- Accommodation taxes are common and widespread around the world in small towns and large cities. (49 of 50 states and many countries around the world)
- Accommodation tax in most areas would be a maximum of $5/night.
- Tax generates income from outside the municipality/town.
- Takes pressure off local tax levies.
- Lodging demand is price inelastic – when the price goes up, buying habits remain about the same.
- Taxes are not charged on long term (30 days+) rentals.
Who will/are charging the tax?
- Thunderbay (4%)
- Fort Frances (4%)
- Sault Ste Marie (4%)
- Sudbury (4%)
Most small NW Ontario municipalities are currently looking at implementing the tax.
An accommodation tax, hotel tax or whatever you want to cal its purpose is to grow, promote and expand tourist and traveler visits to a town or municipality. This is a good thing as government funding for tourism related activities is limited and small municipalities who tend to operate on very thin budgets cannot always afford to promote their region, town or municipality.
Tourism and travelers in general account for a huge proportion of income for businesses and workers throughout the region. If you are not promoting, your tourism industry has little chance of growth to its true potential.
We live in an economically depressed region of Northwest Ontario. Tourism and traveler based businesses offer a growth sector as the region is targeted more and more by tourists every year. If you build it, promote it, they will come. Tourism is a fully renewable resource which is in demand now, we dont need a multi-million dollar investment on a single building to draw tourism.
Accommodation taxes are paid by people from outside the area and will impact higher income earners than lower income earners. This allows municipalities to keep their property taxes from growing to fast or by to much and allow for tourism growth without affecting the small town budgets in our area.
One of the most common complaints regarding hotel taxes are that they drive tourists away. A few things determine if this will be true or not in a given area.
The first is pricing in-elasticity. This has been demonstrated and statistically in numerous studies with the basic result being that hotel/motel/lodging room pricing when they rise (small amounts), there is little to no market effect and people continue to stay. A 4-5% tax may result in a direct 0.5% drop in occupancy.
The second is what else is available? If an area is universal in charging a tax, then the in-elasticity of the pricing is stronger and will result in even less of a drop in occupancy. Here in Nipigon our closest competitor is Thunderbay, they have a hotel tax. So does Nipigon charge a tax or trust that the tax in Thunderbay would drive more people to hotels in Nipigon?
A third determination on the occupancy rates is what is the tax money spent on? Increased marketing with specific focusing on the hotels/lodgings that are being taxed will generate a higher occupancy rate and offsetting any loss. This will in theory also grow numerous other businesses in the area as well as a region benefits from the marketing, promotion and increase in tourism/traveler dollars.
Things that need to be considered
- Determine the price elasticity of our local hotel market.
- Determine the other regional municipalities that are charging or likely to charge the tax.
- Define where the money will go, and make specific allowances to the hotels/lodging venues to offset any potential occupancy drop.
- Tax revenues must also go to should also goto enhance not only visitor experience, but residents way of life as well.
- To be clear and transparent in the tax revenues, where its going and make sure local businesses are supported, not only from the service/lodging industry but also in the development/production and distribution of marketing and promotional materials.