A hotel and accommodation tax or levy is a specific fee on hotel or motel charges. It is generally progressive because it is paid by businesses and higher income earners, who are more likely to stay in hotels when they travel. However it is less progressive when levied on short-term housing for low-income people.
A better way
The four per cent tax on hotel rooms in St. John’s, Newfoundland and Labrador, helps fund the Mile One Convention Centre. Destination St. John’s estimates that conventions and meetings held at Mile One generate $35 million in visitor spending every year.
- Common in U.S. and European cities
- Revenue grows with the economy, but is vulnerable to economic downturns
- Often exclusively used for tourism marketing and development
How does it work?
Hotel and accommodation taxes, also called municipal and regional district taxes, are usually charged as a percentage of the amount paid for hotel rooms or other forms of short-term accommodation. Some municipalities charge a set nightly fee per room.
Hotel taxes help collect revenues from tourists or commuters who use a city’s services but don’t otherwise pay for them. The revenues often fund marketing and development of the tourism industry.
Because tourism is very sensitive to changes in the economy, revenues can fluctuate from year to year.
Who uses it now?
Many U.S. and European cities, and some Canadian municipalities, levy hotel and accommodation taxes.
Ontario is the only province that doesn’t empower municipalities to levy hotel taxes, but major hotels in a number of Ontario cities have voluntarily agreed to collect a three per cent destination marketing fee. The funds are earmarked for tourism marketing and development purposes, and are overseen by industry associations. Even in municipalities that have the power to charge hotel taxes, revenues often are designated for these purposes. However, municipalities still benefit. Without hotel taxes, the city’s efforts to develop and market its tourism industry would rest solely on the property tax base.
Municipalities in Newfoundland and Labrador and Nova Scotia are pushing to gain access to hotel tax revenues that currently only St. John’s and Halifax enjoy.