The hotel occupancy tax, which has been the primary source of funding for most convention and visitors bureaus for a half century, is a flawed and obsolete concept that should be replaced. The problem with the bed tax is that it focuses all of a bureau's attention on filling hotel rooms, ignoring the value of other visitors. It's also a regressive tax.
When hotel occupancy levels plummet, as is now generally the case, CVBs find their source of operating funding (room taxes) severely curtailed precisely at the time when they should be increasing their marketing and sales efforts. Placing the focus primarily on filling hotel rooms means bureaus largely overlook the tremendous potential economic impact of other events, like public exhibitions. These may bring thousands of visitors to a city, many of whom may not require housing. When bureau performance is measured, the first and often the only issue is the level of hotel occupancy in the city; not the total number of visitors who come to the city, which is a more accurate measurement of performance.
What is the alternative to funding by bed tax? We suggest significantly cutting back the level of the bed tax and applying a new and much lower hospitality tax across the entire spectrum of a city's hospitality community. Taxicabs, theaters, restaurants, theme parks — all of the businesses that stand to profit from increased visitor spending — would become subject to a modest levy. A lower but broader tax will raise more money than a high tax applied to a small universe.
With this increased revenue from the broader tax, convention and visitors bureaus would more actively sell events such as off-site banquets, special events, and theme parks to their members. Sales of these group events would be commissionable to the bureau.
This two-tiered approach to the funding of CVBs levels the playing field and recognizes the inherent value of all visitors, even though some may spend more than others. This approach would encourage more support for many events that bring thousands of visitors to a city, events that have not gotten as much support because they do not bring in significant bed tax revenue. It may be an idea whose time has come when one also considers the issue of convention center use.
Many new and expanded facilities are discovering that demand for their facilities is not what was expected, and these facilities may now welcome events that were not earlier considered suitable because of the absence of housing requirements.
Steven Hacker, CAE, is president of the Dallas-based International Association for Exposition Management (IAEM). David Audrain, CEM, is IAEM chairman of the board and the executive vice president of Convexx, a show and event organizing company based in Henderson, Nev. We welcome Talk Back contributions. Send them to rmcgee@primediabusiness.org.