Emerging from the budget impasse talks this week–albeit briefly as the idea is now apparently dead–was a proposal to raise the hotel tax levied by the state from 6% to 11% in order to boost state revenue.
The Department of Revenue notes that the hotel occupancy tax is “imposed at the same rate as sales tax, [and] applies to room rental charges for periods of less than 30 days by the same person”. Its rate was set in 1968–with local option sales/use/hotel occupancy taxes in Philadelphia and Allegheny County. A person subject to the state hotel occupancy tax pays an additional sales tax of 2.5 percent in Philadelphia and one percent in Pittsburgh.
In addition to the state hotel tax, there are separate hotel taxes levied by counties, with differing rates depending on the class of county. Two years ago the state gave several classes of counties the permission to raise their county hotel taxes, and earlier this year officials from Allegheny County expressed their wish to get permission from the Legislature to raise its tax from 7% to 8.25% to fund a variety of tourism and sports related endeavors. The proposal was marketed as a painless undertaking that would not raise the price of hotel stays that much, would fall on out of towners, and had the support of hoteliers.
What a different reaction the budget proposal received (here, here, here, here) compared with the recent hikes or the proposed one in Allegheny County. To be fair, a five point increase would be steeper than the two percentage point increase in the County’s occupancy tax in 1997. The Legislature’s proposed 5 percentage point jump in the rate would have been raised the total tax on hotel stays in Allegheny County to 19%. This would have boosted the average hotel room price of $118.71 to a total cost of $124.64 assuming all the tax could be passed on to customers, i.e., hotels would not lower their base prices to keep business. In comparison, the County’s proposed 1.25 point hike would have pushed the average total room cost to $120.19. Thus, the state plan would have added $4.45 more to the cost of room night than the 1.25 point hike would have.
Interestingly the Mayor of Pittsburgh stated that he would want to know how the possibility of the state hotel tax boost would affect the local plan for the 1.25 point hike. “If they are looking at using a hotel tax to put a stopgap in their budget then we would like to see the assurance that the sports commission is still on the table” referencing the County plan. Surely, if the 5 percent add on had been passed, Pittsburgh hotels would have dropped their support for another 1.25 percent. Surely.
