The myth of the hotel-motel tax

Moderated by Rick Badie

Debate continues regarding the use of partial public funding — money derived from the hotel-motel tax — to pay for a new Atlanta Falcons stadium. Today, an economics professor suggests that it’s a myth to say only out-of-town visitors pay this fee. And two Georgia Chamber of Commerce executives consider the sports venue a wise investment for the state.

Local residents pay hotel-motel tax, too

By J.C. Bradbury

Public funding of a new Atlanta Falcons stadium has focused on the hotel-motel tax, but it’s myth, repeated much lately, that such a tax is paid entirely by out-of-town visitors.

Taxing visitors seems like a winning move because residents get a new project while someone else gets the bill. But putting the responsibility on hotel guests to pay the tax doesn’t mean the revenue it generates comes solely from the pockets of nonresidents.

Economists have long known the burden of a tax is not determined by who pays the tax. The relative sensitivities of both customers and sellers to the prices of taxed goods determine the allocation of the tax burden. The reason for this is that consumers respond to changes in prices, including the tax, which affects the price sellers charge. The concept of shared tax burdens, and determining how they are split between buyers and sellers, is known as “tax incidence.”

Say an Atlanta hotel charges $100 per night, but a hotel tax requires it to collect an additional 10 percent of the room price for the government. Without any adjustment to the room price, the total charge paid by a customer would be $110. The hotel owner would keep $100 in revenue and pass along $10 to the state. But this is not likely to happen, because hotel patrons and owners will change their behaviors in response to the tax.

Consumers tend to buy less when prices rise. At the $110 rate, visitors won’t rent the same number of rooms. Some convention planners and vacationers may opt for hotels in other cities. Visitors who insist on coming to Atlanta can adjust their behaviors by choosing to stay fewer nights or sharing rooms.

The hotel owner won’t be happy housing fewer occupants. The size of the hotel means any revenue the owner can take in helps cover the fixed operation costs. The owner can respond to the tax by cutting the pre-tax room price to offset the added price. How much the owner responds is hard to know. It will be enough to set the total price the customer pays (room plus tax) to somewhere between $110 and $100, which means the revenue the hotel owner keeps will be less than the $100 received before the tax. However, because customers have many lodging options — and hotel owners take losses on every vacant room — it’s likely the hotel owner will lower pre-tax room prices enough to bear a significant share of the tax burden.

While not initially apparent, a portion of hotel taxes are paid by locals. Even with hotels owned by nonlocal entities, the taxes affect the local economy because hotels employ local workers and purchase local goods and services.

Thus, when discussing funding options for the stadium, remember out-of-town visitors aren’t an untapped sugar daddy. We may not agree on how we fund and spend the public purse, but how we make these decisions should be with basic principles of public finance.

J.C. Bradbury is a profesor of sports management and economics at Kennesaw State University.

New stadium is sound investment

By Chris Clark and Steve Green

Every day, in homes and businesses, decisions are made based on return on investment. In making those decisions, we do the research, weigh the pros and cons, and ultimately choose the option we believe will be the most beneficial in the long run.

One of those decisions — the construction of a new stadium to replace an aging Georgia Dome — faces our state today. While there are certainly many factors to consider, an agreement to build a new stadium that shifts the vast majority of the construction expense and future risk to the private sector is a sound investment that will save taxpayers money.

Georgia has experienced the benefits of a new stadium. Construction of the Georgia Dome helped secure the 1996 Olympics, two Super Bowls, marquis college football games and the NCAA Final Four. It is home to the Atlanta Falcons and to high school playoffs. It has played a significant role in growing our hospitality and tourism industry, which generated $1.26 billion in state tax revenue and, directly or indirectly, supported 10.3 percent of jobs in Georgia in 2011.

The Dome is no longer new. It is one of the oldest NFL stadiums. Our competitors have constructed new facilities that threaten our future success. The Dome’s highest-profile tenant has a lease that runs out in 2020. Events such as the Super Bowl and Bowl Championship Series are only interested in newer stadiums. An agreement must be reached soon so that construction can begin and Georgia can retain its competitive edge.

Some argue that it would be better to renovate the existing Georgia Dome. Facts tell us otherwise. The existing facility is owned by the state. Taxpayers are responsible for paying what remains of the bond debt and for all operating, maintenance and capital expenses, including what would be a costly renovation.

The Falcons have proposed a deal for the new stadium in which they assume not only the majority of the cost of construction, between $700 and $800 million, but also operating and capital improvement expenses, while treating the public sector as a partner in design and the handling of legacy events. In addition, the new stadium as proposed would allow Georgia to expand its sports industry by adding major league soccer, which continues to grow in popularity.

Opportunities like this one don’t come along often and are never without criticism. While it is important to respect all opinions and weigh all the facts, it is equally important that we make a decision that will be best for our state in the long term.

We applaud Gov. Nathan Deal, Mayor Kasim Reed, the Atlanta Falcons and state and elected officials for their continued efforts to reach an agreement, and hope they are able to reach a decision that will facilitate a new stadium, support our growing hospitality and tourism industry, and contribute to Georgia’s overall competitiveness. It will reap significant, future returns.

Chris Clark is president and CEO of the Georgia Chamber of Commerce. Steve Green is the 2013 board chair for the Georgia Chamber of Commerce.