If you increase the cost of a product, consumers will buy less of it.
Maybe we could find exceptions to that maxim in the luxury market or in sales of patented medicines, but higher prices typically mean lower sales.
How much will hotel room sales be hurt by the new $5 nightly tax, which was added at the last minute to the transportation funding bill passed last week by the Georgia legislature?
I had been following the progress of House Bill 170 pretty closely, and I don’t recall anyone even mentioning the possibility of taxing hotel rooms. Tourism officials and hotel owners have every right to feel blindsided.
While no one knows the full ramifications of the additional $5 per night, it seems clear that there will be negative impacts.
Michael Owens, president of the Tourism Leadership Council, correctly noted that the new tax will hurt Savannah’s chances in the competition for large conventions. If a convention needs 500 rooms for three nights, the additional taxes would add up to $7,500.
Would that be enough to make event planners choose a different state? Where is the tipping point?
The same problem applies to various tour groups. If you own a company that runs overnight bus tours and are forced to increase package prices by $5 each day, how many sales will you lose? What else will you cut from the trip to keep the price the same?
Last week, I priced a hypothetical two night stay at the Hyatt on the riverfront for an upcoming weekend in April. The room rate was $319 per night, for a total of $638.
But then here come the additional charges: $44.66 in state taxes, $38.28 in occupancy taxes and a $2 occupancy fee. So the total cost would be $722.94. If HB 170 becomes law, another $10 would be added, making the final total $732.94.
At what point will tourists feel the pinch? At what point will they consciously or unconsciously cut back on other spending while they are in town? At what level of taxation will visitors begin to feel exploited rather than welcomed?
As Bill Hubbard, president and CEO of the Savannah Chamber, noted in an article last week by Julia Ritchey, the $5 flat fee has a disproportionate effect on less expensive hotels.
The added cost might seem negligible to someone willing to spend $300 a night for a prime location during high season, but consider the impact at much cheaper hotels.
As of press time, one could book a two-night stay on the last weekend of April at America’s Best Value Inn on Ogeechee Road for a total of $146.90. That includes a daily rate of $65 and $16.90 in taxes and fees.
What’s the impact on consumers when $10 more is added to the final bill and the price breakdown for the room includes $130 in room charges and $26.90 in taxes and fees?
Given the rhetoric from state leaders, the traffic congestion in metro Atlanta and the fact that Georgia has underfunded transportation for many years, it seems certain that Gov. Deal
will sign this new bill into law.
So we will get a better sense of the impact beginning July 1.
By the way, I have long believed that we need to be spending more money on transportation infrastructure, including transit. That was why I publicly supported the T-SPLOST a couple of years ago.
Yes, the additional 1 percent sales tax of T-SPLOST would have increased the cost of consumer goods and therefore would have hurt sales to a small degree, but we would have known that the local revenue would fund local projects, like the construction of safer bridges on the road to Tybee.
Under this transportation bill, we’ll see an added tax on the local tourist industry, higher gas prices and additional burdens on local governments (more on that in an upcoming column), but we have no guarantee how much of the new revenue will be spent on identified regional needs.
As I’ve noted before, this transportation funding bill is really all about metro Atlanta. If Atlanta area residents had passed their regional T-SPLOST in 2012, we wouldn’t need a bill with such onerous provisions.
Ironically, if we ever do want to prioritize regional projects, we will likely have to revisit the regional T-SPLOST or a similar funding scheme.
City Talk appears every Tuesday and Sunday. Bill Dawers can be reached via billdawers@comcast.net. Send mail to 10 East 32nd St., Savannah, Ga. 31401.
By Bill Dawers