John Nothdurft of the Heartland Institute has some words of wisdom on tourism taxes:
Car rental taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es are a prime example of a “tourism” tax that is paid largely by local residents. William Gale, vice president and director of economic studies at the Brookings Institution, concluded in a study he conducted on car rental taxes, “the burden of these excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es on car rental customers creates substantial negative effects on local consumers and business owners.” He added, “broadly speaking, tax exporting is a ‘beggar thy neighbor’ policy; all localities would be better off in the absence of all such policies.”
Tourism taxes also are being used on the local level. In 2008 Smart Money magazine noted, “Chicago has the highest tax burden for travelers, adding $42.44 to daily expenses,” making it the least-friendly U.S. city for travelers.
Instead of kicking an industry while it is down, states and localities should focus on reining in their budgets by eliminating subsidized development schemes such as sports stadiums and convention centers. In order to promote tourism as part of a strong state or local economy and have a stable budget, it is vital to create a non-distorting tax code with low rates and a broad base, coupled with spending reforms.