John Locke: Vote needed on tourism tax hike

By Jessi Stone | May 20, 2014
Photo by: Jessi Stone Becki Gray, vice president of outreach for the John Locke Foundation, speaks to residents about the occupancy tax in Haywood County.

About 20 people attended a meeting on Monday to hear representatives from the John Locke Foundation, a North Carolina think tank organization, present their findings from a study done on occupancy taxes in Haywood County.

Becki Gray, vice president of outreach for JLF, said the foundation has been looking at the occupancy tax issue across the state. She gave a brief history of the occupancy tax, which is a tax the accommodation industry asked to be imposed to provide funds for tourism promotion.

It is a county-by-county initiative, and 86 of the state's 100 counties have agreed with the industry request and received state approval for the tax, which is capped at 6 percent. In addition, numerous cities have received approval to impose the assessment on overnight accommodations in their jurisdiction.

Occupancy taxes began in the early 1980s. Haywood County began with a 2-percent tax and now has a 4-percent tax on rentals.

Last year, the Haywood County Tourism Development Authority proposed to ask for an additional 2 percent to fund tourism infrastructure, which would bring the county’s tax up to the state maximum.

“Most counties are at 4 percent,” Gray said. “(An increase) would make Haywood have the highest (tax) in the area.”

While 2 percent may not sound like a large amount to add to a hotel room charge, Gray described it as “death by a thousand cuts.” For example, a 1-cent sales tax can raise more than $1 billion in North Carolina.

“We’ve looked at 600 studies of high tax rate and that has told us that when you have high rates, you have less economic growth,” Gray said. “Lower taxes mean more economic growth.”

Karen Hession, president of the Maggie Valley Lodging Association, said one argument in favor of the tax increase was that tourists aren’t going to examine the tax amount when making their decision where to stay on vacation. However, she said many of her overnight guests did ask about the tax and even shortened their trip when she told them the total tax was 11 percent.

“People will still come here, but they will have shorter stays,” she said.

After studying the occupancy tax in Haywood County, Gray said she had several concerns and suggested questions for residents to ask their county officials. She said residents needed to decide whether the core function of government should be to collect this tax to improve tourism infrastructure.

“We believe it should go to a vote to see if a majority of taxpayers agree,” she said.

State law does not require a referendum, only approval of a local bill and the blessing of the county commissioners. Haywood could choose to do a referendum, but the results wouldn’t be binding.

The TDA brings in about $954,000 a year from the 4-percent occupancy tax and an increase to 6 percent is estimated to generate another $500,000. Gray said one concern JLF had was that the proposal is it didn’t outline how the addition revenue would be used.

The bill states that a Product Development Committee made up of stakeholders from each municipality would be established if the tax increase was passed. The committee would hear proposals for tourism infrastructure projects and make recommendations to the TDA for final approval. Ideally, the best projects would be funded.

Since the TDA has funding that isn’t being spent each year, Gray encouraged people to question what the TDA spends the money on now before agreeing to give the organization more money.

The study failed to state the law requires the tourism agencies to carry money forward each year and not budget May and June collections.

People in attendance at the meeting were questioning how the occupancy tax money is currently being spent and the lack of transparency. However, the TDA recently held its budget meeting to approve its 2014-15 budget and no one from the public was present to question expenses. The entire TDA revenue and expense report can be found at www.haywoodcountytourismdevelopment.com.

As for other concerns, Gray said the local bill that has been presented to the General Assembly doesn’t fit into the guidelines, which require that at least two-thirds of the tax proceeds must be used for tourism promotion.

The local bill specifies that all the revenue would go to capital projects. If the tourism agency received proceeds from a 6-percent tax, however, 2 percent earmarked for capital projects would mean the other 4 percent, or two-thirds, would be used to promote the local tourism industry.

The language of the bill could be changed, but as it stands, Gray said she didn’t think it would make it out of the financial subcommittee.

“Tourism promotion is not a necessary function of government, since it is focused on benefiting one sector of the local economy. This function can be best served by the private sector,” according to the JLF study.

Gray said many local governments had found themselves in deep debt after using public money to build infrastructure and then not getting the revenue anticipated to pay for maintenance costs.

Even though the occupancy tax would be paid for by tourists, Lynda Bennett of Maggie Valley said the financial burden could rest of taxpayers’ backs if the county can’t afford to take care of the infrastructure that is built.

Gray agreed, adding that the free market should determine the need for arts and entertainment projects like convention centers, theaters and other venues.

“If there is a demand for an entertainment center, wouldn’t someone in the private market take advantage of that opportunity?” she asked.

The bill is currently sitting in the Senate Rules Committee after being introduced last year by Sen. Jim Davis, R-Franklin. While Davis is willing to support the bill if a majority of Haywood County supports it, Rep. Michele Presnell, R-Burnville, is adamantly against the tax. She is the one who asked JLF to complete a study on the issue.

On the other hand, county commissioners, the TDA and all Haywood County municipal governing boards have signed letters supporting the tax increase.

In conclusion, Gray said the JLF wasn’t against all occupancy tax, but the foundation does believe the residents should have a chance to vote on the issue. She also encouraged residents to discuss these issues with county commissioners, the TDA and their elected representatives in Raleigh.

This view differs from those of the report author, Sarah Curry, who had this to say in a email response to The Mountaineer.

"So in principle, we object to any tax that is imposed without the taxpayer having a voice against or for the tax. This is not a specific stance towards the occupancy tax in your county, we objet (sic) to occupancy taxes across the state by principle."

At the end of the meeting, Bennett pointed out that all commissioners, TDA Director Lynn Collins and TDA members were invited to the meeting but didn’t attend. Only one member of the TDA, Mike Graham, was present at the meeting.

Comments (8)
Posted by: Scott Lilly | May 21, 2014 07:23

The conclusion in this article is exactly as I would have summarized it as I also attended the meeting:

 

In conclusion, Gray said the JLF wasn’t against all occupancy tax, but the foundation does believe the residents should have a chance to vote on the issue. She also encouraged residents to discuss these issues with county commissioners, the TDA and their elected representatives in Raleigh.

 

I was a little disappointed that nobody could articulate any justification for the tax.  All of this phantom support I read about and all of the local government that is supposedly for this tax increase did not materialize in any justifiable representation as to why they want to raise taxes.  Kind of makes it hard to discuss this issue with no "other side" to consider.  :-)

 

So, put this to a vote.  If the people of Haywood County want to take more taxes from their visitors and that harms tourism in any way, they only have themselves to blame.  If local government uses TDA funds to build something else that needs maintenance, staff to manage it, and upkeep, local voters will only have themselves for being shortsighted.  If local hotel owners get another 2% taken from their revenue "off the top" and we get more vacant or run down hotels, voters can have pride they did that in exchange for ___________.  We still don't know what -- just fill in the blank of what you think government would do.

 

I still think cutting the tax in half and sending it all back to the zipcodes would be a good idea.  I'd like to hear that idea discussed.



Posted by: jessi stone | May 21, 2014 10:04

Scott - I didn't know you were at that meeting! Wish you would have introduced yourself. Are you still in town? We'd love to take one of our best online contributors to lunch!



Posted by: Ron Rookstool | May 21, 2014 10:23

Scott,

My understanding about the tax is that the consumer would be paying the tax, not the motel.  The motel is only collecting the tax, thus the tax (itself)  does not reduce the motel's revenue.



Posted by: Scott Lilly | May 21, 2014 10:56

Mr. Rookstool, yes, some people with more accounting sense than I keep telling me that.  But as someone in the meeting made the point: when people only have a limited budget to spend, the more taxes eat into that budget, the shorter the stay they will make.  That's an impact to the proprietor's bottom line and impacts their revenue.

 

I also just can't believe there's no penalty for someone not to pay the tax but if the tax is not collected, it's the hotel owner that is in trouble.  So in my own simple head, I think it's the TRANSACTION that is taxed and that transaction is jointly the buyer and seller.



Posted by: Scott Lilly | May 21, 2014 11:41

Mrs. Stone, I did give you a quick "Hello, neighbor" going up the stairs on Monday.  You've met me before -- you just don't realize it.  ;-)



Posted by: Cliff Pettit | May 22, 2014 12:58

I would like to see the budget for how the current $954,000 is being spent and how would the additional $500,000 be targeted to increase tourism.  We should be examining how best to spend the current income to produce the maximum benefit to Haywood County.



Posted by: jessi stone | May 22, 2014 13:20

The entire TDA revenue and expense report can be found at www.haywoodcountytourismdevelopment.com.



Posted by: Scott Lilly | May 22, 2014 13:50

My problems with the posted TDA accounting records are that (1) the "proposed" budget is not final and is marked "draft", and (2) last year's accounting records are not audited.  This is equivalent to someone saying "This is how we spent our money, trust me on that."  I doubt this will fly in an IRS audit and with such public scrutiny on this area, posting a financial shortcut is a surprising decision.

 

"We have not audited or reviewed the accompanying financial statements, and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America."

"Management has elected to omit substantially all of the disclosures required by accounting principles generally accepted in the United States of America.  If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the Organization's financial position, changes in net assets, and cash flows."

"We are no independent with respect to Haywood County TDA."



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