What Is Tourism Tax? How It’s Calculated and Used
Learn how tourism taxes function as a key financial tool for destinations, funding everything from marketing campaigns to essential public infrastructure.
A tourism tax is a charge applied to goods and services that travelers purchase, also known as an occupancy, lodging, or bed tax. The purpose is to generate revenue from visitors who use a destination’s resources. This income helps fund the maintenance of public spaces and services, ensuring the financial burden of tourism is not placed solely on the local population.
Common Types of Tourism Taxes
Lodging or Occupancy Tax
The most prevalent form of tourism tax is the lodging or occupancy tax, applied to the rental of short-term accommodations. It covers stays in hotels, motels, inns, and vacation rentals. The tax is levied on a per-night basis, tied to the use of lodging facilities.
Rental Car Surcharges
A surcharge is often added to the cost of renting a vehicle. These taxes are targeted at travelers who rent cars, and the fee is incorporated into the total rental agreement and collected by the rental agency.
Meal and Beverage Taxes
In areas with a high concentration of visitors, a special tax on restaurant meals and beverages is implemented. These taxes are an additional percentage added to the bill at food and drink establishments within a designated tourism district or city.
Passenger Facility and Airport Charges
Travelers using air transportation encounter passenger facility charges, which are fees added to the cost of an airline ticket. The revenue is specifically earmarked for airport-related projects like terminal improvements and runway maintenance.
How Tourism Taxes Are Calculated and Collected
The calculation of a tourism tax follows one of two models. The most common method is a percentage-based tax, where the fee is a set percentage of the total cost of the service, like a 10% occupancy tax on the nightly room rate. The alternative is a flat-fee system, where a fixed amount is charged per unit of service, such as a $2 per night fee.
The collection process is managed at the point of sale. Businesses like hotels, rental car agencies, and restaurants are responsible for adding the tax to the customer’s bill. They collect the tax from the traveler and remit the collected revenue to the appropriate government agency on a regular schedule.
Use of Tourism Tax Revenue
A primary use for tourism tax revenue is promoting the destination. Funds are directed to destination marketing organizations (DMOs) or convention and visitors bureaus (CVBs). These organizations use the money to create advertising campaigns and develop marketing materials designed to attract more visitors.
The construction and maintenance of public facilities are also common uses for this revenue. This can include financing for convention centers, sports stadiums, and performing arts centers. Funds are also allocated to support local infrastructure strained by visitors, including the upkeep of roads, public parks, transit systems, and public safety services.
In some jurisdictions, a portion of the tourism tax revenue may be directed into the general fund of the city or county. When this occurs, the money is not restricted to tourism-related spending and can support a wide array of public services, from schools and libraries to healthcare.