If airport delays, high gas prices and congested roadways weren't enough, here's something else to spoil your August vacation: State and local governments across the U.S. are getting ever more aggressive about taxing tourists.
Does an Alaska cruise sound refreshing? The state is imposing a new $50 per person "head tax" on cruise ship passengers.
Is a motor coach tour of the nation's capital more your speed? On Aug. 1, Washington, D.C., began collecting a new permit fee on tour buses entering the city--a $50 fee for each six days, or a maximum of $2,200 per bus a year.
Maybe you don't do boats and buses. You rent cars. In a survey last November, Travelocity found car rental taxes (including special airport facility fees) at the 100 largest U.S. airports averaged 28%, up from 25% in early 2005. Even off airport property, in the neighborhoods surrounding these airports, rental taxes averaged a stiff 15%. One bargain back in November was California, where taxes averaged just 12% at the airports and 10% in the neighborhoods, according to Travelocity. But on Jan. 1, California started charging an additional 2.5% statewide tax on cars rented at either California hotels or airports.
Revenue from the new California car rental tax is supposed to be used to promote tourism. Similarly, many recent increases in hotel taxes are also, at least ostensibly, related to promotion of tourism--for example for funding new or expanded convention centers. (A 2004 study pegged the median hotel tax nationwide at 14%, but it's no doubt higher today.)
As tourist taxes climb, the rental car industry, at least, is fighting back. A coalition made up of rental car companies, travel industry associations, and even one consumer group, has persuaded 10 members of the U.S. House to co-sponsor a bill that would ban any new car rental taxes passed after May 24, on the grounds they interfere with interstate commerce. The bill, which wouldn't affect general sales taxes or airport levies, stands little chance of becoming law. But it's part of a broader campaign by the industry to focus attention on the growing and disproportionate tax burden on car renters.
A tally kept by Enterprise Rent-A-Car shows 99 jurisdictions (states, counties or cities) now impose special taxes, over and above regular sales taxes, on car rentals. That's up from 45 jurisdictions in 1996. The count doesn't include any special airport authority fees since Enterprise acknowledges those fees might be related to special services, such as shuttle buses that renters use.
Last year, Enterprise commissioned a study by two respected outside economists that found most of the new car rental taxes are going to subsidize local sports stadiums or be used for other purposes with no relationship to special services for car renters. The taxes have proliferated, the economists concluded, because they look like easy money to local officials, who assume renters are out-of-towners. Actually, away from the airports, most are locals.
Urban Institute economist Kim Rueben, one of the Enterprise study's authors, notes the proliferation of tourist taxes are part of a larger phenomenon: State and local politicians (particularly in Western states with voter referendums) have become wary in recent years of imposing general tax hikes that might rile voters. So when they need revenue, they look first to impose taxes on outsiders and on narrow--and when possible, "sinful" groups--such as smokers, drinkers, gamblers and speeders. They've also been relying more on higher user fees for recreation and roads, which also hit vacationers.
In fact, a recent survey by the National Governors Association and National Association of State Budget Officers found that for fiscal 2008 the nation's governors had proposed a net total of $3 billion in personal income tax cuts, offset by a net increase of $1.2 billion in tobacco and alcohol taxes and a net increase of $2.1 billion in miscellaneous taxes and fees. Delaware lawmakers, for example, just adopted a budget that nearly doubles the state cigarette tax (to $1.15 per pack), hikes tolls on Interstate 95 and other in-state roadways and levies a 50% surcharge on traffic fines.
And rather than giving more direct aid or broad taxing power to local governments, state legislators have been giving them the ability to levy the same sort of narrow taxes. Just last month, Pennsylvania lawmakers authorized Allegheny County, Pa., which includes Pittsburgh, to subsidize local public transit with two new taxes: A $2 daily tax on rental cars and a 10% extra tax on drinks sold in bars and restaurants.