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Travel Taxes

Tax-hungry cities target tourists with "discriminatory" taxes

Ed Perkins  Aug 12, 2010

Taxation without representation! To a citizen of a democracy, "that's tyranny." To a bureaucrat, "that's the best kind." Worldwide, taxing authorities have targeted tourists -- not in the least because tourist taxes fall most heavily on people who don't vote on either the taxes or the people who impose them. Worse yet, as a tourist, you can't do much about them -- except stay away from the worst offenders. Sadly, those are often places you want to visit.

A study just released by the National Business Travel Association (NBTA) identifies the tourist tax burdens in the 50 most heavily visited U.S. cities. Burdens are based on a typical visitor day, including hotel, restaurant meals, and taxis. As far as I can tell, NBTA used fairly conservative figures for hotel and restaurant meals, not inflated four-star prices.

The total tax burden -- a combination of taxes that target tourists plus sales taxes and other levies that locals pay -- averages close to $30 a day. That total burden is highest in Chicago, New York, Boston, Seattle, and Minneapolis, where visitors pay around $40 to $45 a day. The total burden is lowest in Ft. Lauderdale, Ft. Myers, Portland Ore., Detroit, and Honolulu, where visitors pay around $20 to $25 a day.

The "discriminatory" tax burden -- the total of taxes that specifically target visitors and not locals -- averages a little over $10 a day. The discriminatory burden is highest in Portland, Ore., Boston, Minneapolis, Indianapolis, and New York City, where visitors pay about $15 to $20 a day. The discriminatory burden is lowest in five California areas: Orange County, San Jose, Burbank, San Diego, and Ontario.

Bad as the current situation is, tax-hungry municipalities and airports keep upping the ante. Chicago, for example, just doubled the airport taxi fee from $2 to $4 and is adding a huge $8 daily fee on rental cars.

In the United States, airport fees and security fees are bundled into the fare you pay. But many foreign airports level departure fees -- often payable only in local cash.

To me, however, the most troublesome taxes are Europe's relatively new national visitor levies designed not only for revenue but also to discourage air travel. The UK's "air passenger duty" is the worst: Starting November, it will hit travelers leaving UK airports on flights to the United States with a stiff duty of 60 pounds (about $96) in economy class and 120 pounds in any premium class, including premium economy. Ireland imposes a less onerous tax of 10 euros (about $14) and Germany appears about to assess a similar levy of 26 euros (about $36) on air passengers.

Unfortunately, many environmentalists want to discourage air travel in general. This attitude troubles me, because of all the uses of fossil fuels, air travel is uniquely unable to find a technically and economically feasible alternative to oil for the foreseeable future. Railroads can electrify; power generation can go nuclear, and cars can operate on batteries.

The UK duty is actually counterproductive: If the objective is to pressure folks into avoiding air travel, it would place a higher tax on short-haul trips -- where travelers have good rail alternatives -- rather than long-haul trips for which there is no practical substitute. The long-haul tax on a departure from the UK is more than you would pay to take the Eurostar to Paris or Brussels for a no-tax return flight.

It's anyone's guess where this will end. However, evidence indicates that excessive tourist taxes can cause countries to lose more revenue -- in the form of decreased visitor expenditures -- than it gains through the tax. The Dutch have already recognized this problem, and Ireland is facing a lot of pressure to rescind its tax.

Where will it end? If anyone can pressure local authorities into caution on overtaxation, it's their own convention and visitors bureaus. Although individual tourists may have limited impact, cities really worry when they start losing big conventions -- and overtaxation is one reason they sometimes lose business.

The only lesson for individual travelers is to budget for taxes when they plan a visit, and avoid the few avoidable levies such as a taxi fee in Chicago -- use public transit instead.

Tax-hungry cities target tourists with "discriminatory"  taxes
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