Colorado Resort Sales Taxes

July 23, 2009

Daniel Hamermesh at Freakonomics blog makes an important tax observation from his vacation:

Before our current vacation in Colorado, I was pleased to notice that its sales tax rate is only 2.9 percent. On my first purchase in Steamboat Springs, though, the tax rate was 8.4 percent — the town adds 5.5 percentage points to the state rate. Annoying to me, but sensible, and probably efficient and equitable. After all, much of the purchasing is by tourists like me, and our demand for goods here is probably quite inelastic, so the excess burden of the tax is small.

Of course, that argument is why a city could tax tourists, not necessarily that they should. Yes, you can probably load up tourists with tons of taxes and they’ll take it for quite a while, like the proverbial Atlas. But, contrary to what is sometimes claimed, tourists often add net economic benefits to a community and consume fewer public services than residents. It’s a mistake to punish that with higher taxes, since you probably lose some visitors with every increase. And soaking tourists can lead to residents demanding more government than they are willing to pay for, with a serious crisis if tourism ever slackened.

But he is correct on Colorado’s local sales taxes in resort and tourist-heavy areas. We have our map of combined state-local sales taxes, which adds the state rate with a weighted average of local rates. And although the Streamlined Sales Tax Project (SSTP) has given up on reducing or rationalizing the thousands of sales tax jurisdictions in the country, they may push for nifty maps of all the different rates.

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