default avatar
Welcome to the site! Login or Signup below.
Logout|My Dashboard

Must the Hotel Occupancy Tax be so high? - The Eagle: Columnists

Must the Hotel Occupancy Tax be so high?

Font Size:
Default font size
Larger font size

Posted: Thursday, September 13, 2012 12:00 am | Updated: 10:32 pm, Thu Jan 31, 2013.

What if there was a tax that collected millions of dollars a year, much of which cities waste, and which had a questionable impact on the local economy. Would you support such a tax? Probably not, right?

It exists - it's in College Station's budget every year - and it's called the Hotel Occupancy Tax.

Created in 1981 by the Texas Legislature, the Hotel Occupancy Tax allows the state to tack on a tax of 6 percent to every hotel room night sold in Texas. It also authorizes municipalities to collect up to an additional 7 percent. The city of College Station collects the maximum 7 percent.

Local politicians usually have said something to the effect that, because the tax is collected on people staying in hotel rooms, it isn't collected on local residents and, therefore, does not have a negative impact on the economy.

Unfortunately, that simply isn't true. Virtually all taxes affect the economy in some way, and the Hotel Occupancy Tax is no exception. That's because the tax incidence, meaning who actually bears the burden of the tax, can be surmised to fall in some measure on both hotels and visitors.

The reason for this is what economists call price elasticity of demand, or how sensitive consumers are to price changes of a good or service. If hotel rooms in College Station were always at 100 percent occupancy then consumers would be insensitive to the higher price caused by the hotel tax. Therefore, demand would be "price inelastic."

This isn't the case in College Station, however. Other than several nights each year such as home football games, some basketball games, parents' weekends and graduations, hotel occupancy in College Station rarely reaches that 100 percent level. As a result, visitors are not completely insensitive to price changes, and the Hotel Occupancy Tax forces hotels to change their raw prices so that they bear some of the burden of the tax. The hotels make less profit than they otherwise would, and therefore less that can be reinvested into the local economy.

Therefore, it would be ridiculous to say that the tax doesn't (or can't) affect our local economy or our local businesses because it supposedly only falls on "out of town visitors." That's just not true.

There's another problem with the tax: much of the Hotel Occupancy Tax fund often ends up getting spent wastefully because it maintains a fund balance far higher than necessary for its annualized expenditures.

The 2013 College Station budget projects Hotel Occupancy Tax revenues of $3.8 million. Out of this, only $1.4 million will be spent to fully fund all of the external agencies that receive Hotel Occupancy Tax money, such as the Convention and Visitors Bureau and the Arts Council of Brazos Valley.

Does it make sense to collect a tax at well more than twice the amount that's necessary? Taxes usually are scrutinized closely by the public, and are politically difficult because residents watch to ensure that their money is spent carefully by their representatives.

Yet the Hotel Occupancy Tax is about as politically easy as any tax can be because few residents pay much attention. So cities, including College Station, have little incentive not to collect it at its full amount of 7 percent. The surplus money is then spent on a lot of projects and programs which hardly constitute any reasonable definition of "core government services."

One notable example was the purchase of the Chimney Hill Shopping Center as a convention center site for twice the appraised value at $9.6 million. Now, the property is almost certainly worth much less than College Station paid for it. Hopefully, the city will sell it some day, because just sitting on the mostly vacant property doesn't make much sense.

Another example, from earlier this year, was a $256,000 project for "wayfinding" signs to point people to destinations around the city. What destinations? City parks, Northgate, and the Bush Library. Each sign will cost thousands of dollars. Don't most people have smartphones and GPS devices for that sort of thing?

As long as the Hotel Occupancy Tax is collected at its maximum 7 percent just because it can be, our city will have to find uses for these tax dollars, and that means less incentive to spend it carefully. That might be fine if it was free money, but it isn't. It was money out of someone's pocket, and certainly to some extent, it means lower profit margins for our local businesses and less money flowing into our economy.

If it is collected and spent at all, it should be collected only to the extent necessary to fund those organizations which actually promote tourism and "heads in beds" - not on fancy projects which would never be bought otherwise.

Otherwise, local politicians will keep spending it on all manner of things for years to come, and swearing that our residents need not worry - because the money is free.

Jess Fields is a businessman and member of the College Station City Council.

More about

More about

More about

Rules of Conduct

  • 1 Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
  • 2 Don't Threaten or Abuse. Threats of harming another person will not be tolerated. AND PLEASE TURN OFF CAPS LOCK.
  • 3 Be Truthful. Don't knowingly lie about anyone or anything.
  • 4 Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
  • 5 Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
  • 6 Share with Us. We'd love to hear eyewitness accounts, the history behind an article.

Welcome to the discussion.

Follow us on Facebook