Proposals for New Hotel Taxes in Suburban Saint Louis Misguided

Unlike most other taxes within Saint Louis County, the hotel tax is nearly always the same wherever you stay. That’s because hotel taxes in the county have, for 20 years, operated through a countywide pool that supports the regional work of the St. Louis Convention and Visitors Bureau, funds major county parks, and pays off the bonds used to finance the Edward Jones Dome.

The pooled nature of the tax also reduces the incentive for city planners to attempt to use tax dollars to lure hotels to their municipality. Outside of a pooled tax system, cities will frequently promise away property taxes, which in large part fund other government agencies, in exchange for the hope of being able to keep the bulk of the resulting increased sales tax revenue. A pooled system greatly reduces this practice, because cities share tax revenues. This practice makes everyone better off, because it allows market forces to dictate where hotels are located, rather than leaving it to government planners.

Two cities located in Saint Louis County are now proposing local hotel taxes. Voters in Clayton and Richmond Heights will decide on Nov. 2 if they want to institute the tax. Voters prefer taxing other people instead of themselves, so I will be pleasantly shocked if the proposals fail. But just because voters will likely approve the tax does not make it sound policy. Hotels already pay substantial commercial property taxes and business license fees to the cities in which they are located. The guests themselves also pay the standard city sales tax on their rooms. These taxes already account for the public services used by hotel guests during their stay.

The hotel tax system is similar to another successful pooled tax for many cities in Saint Louis County — the sales tax pool. Cities within this pool have seen less usage of tax increment financing (TIF) and other forms of incentives. Indeed, all the prominent cases of eminent domain abuse in the county have occurred in cities that are outside of the sales tax pool, such as Sunset Hills and Rock Hill.

If every city in the county is authorized to adopt its own hotel tax, you can rest assured that some cities will offer property tax abatements and other incentives to persuade hotels to move there. We have already seen that scenario with the retail industry in the county. The end result does nothing to increase total economic growth for our region. Instead, it only benefits select cities at the expense of school districts and other taxing bodies.

The structure of the tourism tax pool benefits our entire area. Most importantly, it allows hotel owners to invest in their businesses without fearing they will be put at a tax disadvantage to competitors in neighboring cities. This is no theoretical risk: One project in Richmond Heights has already been put on hold because of the potential tax increase. The pooled tax approach also allows for coordination in advertising our city to potential conventions and tourists. This author does not necessarily like using tax dollars to run ads in Des Moines urging people to come to Saint Louis, but it would be far worse if those ads said, “The 12 residents of Champ, Mo., encourage you to visit their village.”

If cities want to grow business within their communities, they should focus on keeping taxes on businesses low, and not imposing additional taxes on select industries — as the cities of Clayton and Richmond Heights currently propose — or on business in general, as Clayton is also doing with its commercial property tax rate increase. Pooling taxes works for the cities in the sales tax pool, and it has been working for the hotel and tourism industry in Saint Louis. Voters in Richmond Heights and Clayton should consider the costs associated with these hotel tax increases, and the state legislature should consider rescinding the ability of cities in Saint Louis County to enact their own hotel taxes. The county’s existing hotel and tourism taxes are more than sufficient to accomplish their purposes: to advance both the city and county of Saint Louis as a whole, not 92 separate municipalities.

David Stokes is a policy analyst for the Show-Me Institute, a Missouri-based think tank.