Away on Business: Taxing Travel

Sat Jul 31, 2004
By Michael Conlon

CHICAGO (Reuters) - The pickup in business travel is good news for state and local governments who count on hotel and motel room taxes to help finance everything from sports stadiums to payrolls.

But while business travelers are a convenient, anonymous and moving target for such taxes, an industry study indicates there are limits.

In 2003, U.S. room taxes averaged 12.4 percent, or about $9.51 per night nationwide, based on an average room rate of $83.26, according to research done for the Washington-based American Hotel and Lodging Association, with some 10,000 property members nationwide representing more than 1.4 million guest rooms.

There is a wide variation within the averages. The highest single combined room tax rate for last year -- 18.8 percent -- was found at properties on the New Jersey Shore. The cheapest -- 7 percent-- was in Maine and Montana.

In dollar terms, the highest average tax bite was New York City at $25.84 daily, with Hawaii's Maui not far behind at $20.93. At the other end -- at $4.18 a night -- were rooms in Nebraska. Other spots in the $5 tax range were found in western Kentucky, parts of northern Ohio, Arkansas, Alabama and Oregon.

But the study concluded that raising such taxes has mixed results. A 2 percent increase in the current average 12.4 percent rate would cause more than a 2.2 percent drop in room sales and related visitor spending nationally, the study estimated, with implications for every sector of the U.S. economy.

Nearly 50 cents of every dollar in increased revenue such a hike would raise could be offset by tax losses from reduced visitor spending.

While such taxes are a costly out-of-pocket expense, they are partially recoverable at tax time.

Companies (and the self employed) are able to take the full cost of a room -- basic rate and taxes combined -- as a business expense deduction at tax time.

They are not required to list each breakdown of the taxes into segments -- state, local and so on -- as business travelers are sometimes required to do when filling out an expense report for reimbursement, according to Jackie Perlman, a senior tax research analyst for H&R Block in Kansas City, Missouri.

One reason that business travelers often have to list each room tax separately each night in an expense account report is that companies like to know whether the basic hotel room charge -- before taxes -- is what it should be. Companies often negotiate discounted group room rates for their travelers, and having the figures broken down helps with accounting, according to Don Monroe of American Express.

He suggests that another reason for the practice is to facilitate the recovery of value-added taxes from countries where employees have been charged them in the course of travel. In general, U.S. travelers to Europe, Canada and some other areas can recover value-added taxes levied on most goods and services from those governments on their return.
Monroe also said that rental car taxes -- another favorite revenue spigot for local governments -- have been moving up the last two years. One way to avoid the highest levels of such taxes, some earlier studies have shown, is to avoid renting a car at an airport location. Off-airport locations frequently have lower tax levels.

Another room-tax quirk comes with long-term housing, the 30-day or longer stay facilities designed specifically for employees sent out of town for long-term but temporary assignments.

According to Dee Dee Dochen, spokeswoman for Marriott ExecuStay, room taxes for long-term guests vary by state.

In California, for example, a guest is taxed for 30 nights but the taxes cease on the 31st and consecutive nights. In Florida the taxes are in place for 180 nights and then lifted. In North Carolina it's 90 days.

Usually if a guest checks out to return home -- say for a weekend -- the clock starts again on his or her return in terms of how long the taxes are levied.




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