Ready to book a holiday season vacation? Maybe you should check the forecast for the local tax climate first.
The Global Business Travelers Association is just out with its listing of the best and worst cites for travel taxes—which it defines as levies on rental cars, hotel rooms, and restaurant meals. The annual ranking compares the top 50 destinations for business travelers, but those are prime destinations for leisure travelers too.
In the surprising category: Honolulu managed to sneak onto the 10 lowest tax list (at #9), along with such low tax Florida locales as Fort Lauderdale, Fort Myers and West Palm Beach, which are in a three way tie for having the lowest taxes.
In the not-so-surprising category: the two most taxing cities this year are Chicago and New York, which were also the worst in GBTA’ 2011 ranking. That’s despite the fact that the study’s methodology cuts a big break to high cost cities like the Big Apple, since it calculates taxes assuming the underlying, pre-tax costs are the same in each city. (That way, it’s a pure comparison of tax rates.)
The GBTA assumes an average pre-tax daily hotel room rate of $103.45; average daily pre-tax spending on restaurant meals of $91.22; and an average pre-tax car rental cost of $55.99 a day. On that $250.66 daily base, Chicago piles on $40.31 a day in taxes, including the nation’s highest car rental tax, at $13.95. Do the math and that works out to a 16.1% tax on tourists. In the three lowest tax Florida cities, the bite is just $22.21—for an 8.9% tax rate.
Cities vary in their preferred methods for squeezing tourists. New York—the “city that never sleeps”—gets you while you sleep, with the nation’s highest hotel tax ($18.76) contributing to its second worst $37.98 tax tab. But that’s assuming you can get a hotel room for $103.45 a night. Good luck with that. (Apply the city’s 14.75% hotel tax and its $3.50 a night flat rate hotel levy to a more realistic average room rate of $200 a night, and you’re shelling out $33 a day for New York hotel taxes alone.) Overall, Minneapolis has the highest restaurant taxes, with Chicago close behind.
Politicians often find it easier to slap on special travel taxes than to raise broad-based levies on their constituents. The idea is to shift the burden to outsiders, who don’t vote. So the GBTA also identities the best and worst cities for “discriminatory” taxes—an effort to distinguish between places that jack up the tax bills on items bought primarily by travelers and those that may have high fairly high regular sales taxes, but don’t impose a lot of extra levies on travelers. (The six least discriminatory cities are all in California: Burbank, Orange County, Ontario, San Diego, Los Angeles and Oakland.)
Also driving up travel costs is the proliferation of special taxes (and taxing districts) to pay for tourism promotion, downtown districts, convention centers and stadiums. There’s a stiff 17% hotel tax in Indianapolis, with 10% going to fund the Indiana Stadium and Convention Building Authority, which built a new stadium for the NFL’s Indianapolis Colts. Minnesota politicians agreed in May to use a special 3% downtown Minneapolis restaurant and hotel tax, which had originally supported the local convention center, to help pay for a new stadium for the Minnesota Vikings. (That’s 3% on top of local and state sales taxes and a transit levy, bringing the the tax on Minneapolis restaurant meals to a highest-in-the-nation 10.775%. according to a separate Tax Foundation study of restaurant taxes in the 50 largest U.S. cities.)
In the GBTA ranking, Portland ranks as the worst when it comes to discrimination, even though its $22.45 a day in daily taxes is the fifth lowest overall. That’s because Oregon has no sales tax, so the normal sales taxes on a traveler’s purchases would be $0. Portland doesn’t levy any tax on restaurant meals—the locals eat out too, after all—but it does impose three special taxes on hotel rooms, including a 5.5% levy to fund a convention center. (Not that Portland residents get off tax free; they pay heavy income taxes, with a top state rate of 9.9%, one of the highest in the nation.) Boston ranks as the second most discriminatory (and third worst on taxes, overall) thanks in large part to a stiff $10 per day car rental surcharge.
The new study is based on tax rates as of July 1, 2018. Of course tax rates are always in play somewhere. In November, for example, Californians will vote on a package of tax hikes backed by Gov. Jerry Brown that includes a 0.25% increase in the state’s sales tax. At the same time, residents of Sacramento, one of the top 50 destinations, will vote on an additional 0.5% sales tax increase there.