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The Honolulu Advertiser
Posted on: Tuesday, July 15, 2003

States targeting tourists with taxes

By Barbara De Lollis
USA Today

Travelers face higher taxes as more state and local governments turn to out-of-towners to ease their budget troubles.

In the past two months, at least four states have adopted taxes on lodging, meals or car rentals, and several cities are considering them. Some of the biggest tax increases are popping up in:

New Jersey. This month, the state adopted a 7 percent tax on hotel stays that will be added to the state's 6 percent sales tax starting Aug. 1. Municipalities were also given the power to adopt an extra 1 percent tax. Gamblers in Atlantic City also will pay more: a 4.25 percent tax on complimentary hotel rooms and meals; a $1 increase, to $3 a vehicle, for casino parking; and a $3-a-night surcharge on all casino hotel rooms.

Alaska. It will impose a 10 percent tax on car rentals and a 3 percent tax on recreational vehicle rentals, starting Jan. 1. A similar measure failed several years ago.

Indiana. It began imposing a 6 percent sales tax on complimentary hotel rooms this month. Hotels often offer groups a few complimentary rooms to win meetings and convention business. Under the law, a $100 complimentary hotel room now costs $6.

Rhode Island. It adopted a 1 percent tax on restaurant meals. The tax, combined with the 7 percent sales tax, means restaurant patrons will pay 8 percent on every bill.

"There's been an escalation of taxes from all levels — federal and local — especially since the economy has not been moving," says Kevin Iwamoto, president of the National Business Travel Association. "You're getting hit in every area."

Companies spend at least a fifth of their travel budgets on taxes, not including the airport security fee, which adds as much as $10 to airline tickets, he says.

"If you add all of that up, that's a lot of taxes for a business or individuals to pay," he says.

Business owners are fighting the taxes in some cases.

The Indiana Hotel and Lodging Association, for instance, is leading a campaign to repeal the free-room tax. The group says it was passed with little debate and could hurt the state's convention business.

In West Memphis, Ark., the local hospitality association is collecting signatures to rescind a 1 percent local tax on hotels and restaurant meals passed last month. Supporters of the tax say it's needed to keep buses running, but hotel owners say the revenue isn't being used for promoting tourism, as intended.

New or higher travel taxes are also being considered in Philadelphia, San Diego, Albany, N.Y., Redwood City, Calif., and Carmel, Calif.