Shocking Support for Taxing Bed and Breakfasts

Bed & breakfasts (B&Bs) have a long history in this country. To many they are associated with comfort and an antique ambiance. To the taxman they are a prime opportunity to raise revenue.

Last week, the St. Louis Post-Dispatch reported that Saint Louis bed & breakfast owners are upset over the city assessor’s decision to assess their property (or at least the part used as B&Bs) as commercial properties. I can understand why these owners would be upset. According to the way properties are assessed for property tax purposes, if B&Bs were even partially assessed as commercial properties, the owners’ property tax bills would go up substantially.

I sympathize with any business owner that is facing a higher tax bill. However, I do not oppose this change. Saint Louis is doing the right thing here. If a property is engaged in commercial activity, the city should assess it as a commercial property. The situation is trickier with people renting rooms through airbnb. These lodgings are not necessarily full-time establishments, and so some mechanism needs to be in place to make sure they don’t get a tax advantage compared to traditional B&Bs.

Having a large property tax base is important. It’s especially important in Saint Louis because it can serve as a way to reduce (or even eliminate) the earnings tax. The Show-Me Institute released a paper arguing that the earnings tax could be replaced by a two-tier property tax (this differs from a traditional property tax in that the two-tier approach taxes the land more heavily than any improvements on the land). Even if the city sticks with a traditional property tax system, a wider base can generate more revenue to offset any reductions in the earnings tax.

Paying more in taxes is never fun, but low taxes for some shouldn’t come at the cost of a hollowed-out property tax base.