New Hotel Tax a Bad Idea for Jefferson City

On Feb. 8, the citizens of Jefferson City will vote on a proposal to increase the city’s hotel tax. If the proposal passes, this tax would increase from 3 percent to 7 percent, with the increased tax revenues earmarked to fund a new conference center. These hotel tax votes are often an easy choice for voters, because it can seem like an attractive idea to tax somebody else to fund your own public service or community asset. Although it may seem to be an easy decision, voters of Jefferson City should think seriously about the downside to the constant quest by governments at all levels to raise tax revenues.

Hotels in Jefferson City already experience a high tax burden. They pay commercial property tax rates and the Cole County property tax surcharge. The hotels must obtain business licenses, liquor licenses, restaurant health inspections, etc., just to open and operate. Guests at the hotels pay the standard state and city sales tax of 7.725 percent for the rooms, as well as Jefferson City’s current 3-percent charge on top of that.

The question is not whether the current taxes are reasonable. In comparison with most other cities, they are. But the voters of Jefferson City should consider whether this is the time to tell their elected officials “enough.” Voters in three suburbs of Saint Louis did exactly that in response to hotel tax proposals in November. Voters in Clayton, Richmond Heights (both within Saint Louis County), and Saint Peters (in Saint Charles County) overwhelmingly rejected hotel tax proposals at the polls. The voters sent a message to local elected officials that they wanted difficult budget issues to be dealt with through greater fiscal discipline, not higher taxes. The voters of Jefferson City should give strong consideration to saying the same thing.

The private sector is capable of providing a conference center if there is a genuine market for one in Jefferson City. The taxpayers do not need to build one, even if the “taxpayers” in this case are mostly visitors from other areas. The city of Saint Louis used tax dollars to build a convention center hotel a decade ago, an investment that has worked out poorly. The hotel was unable to make its bond payments and was literally sold on the courthouse steps in 2009.

Nobody knows whether Jefferson City’s proposed conference center would also fail. It is reasonable to suspect that demand for hotels in Jefferson City is more inelastic than in many other Missouri locations, because many of those who travel to Jefferson City do so because they have matters that require the visit, regardless of the cost. However, although Jefferson City may face a lower risk than many other cities of losing business after a hotel tax increase, it does not follow that the tax should be increased.

Conference centers are not a core responsibility of local governments. There is almost nothing about a conference center that fits the economic definition of a public good. The hotel that developers plan to build next to the conference center is privately funded, and the backers of that project will undoubtedly direct their investment more efficiently than the promoters of a publicly funded conference center. Private investment in the conference center would have greater positive consequences than public subsidy, and taxpayers would not be on the hook if the hotel fails.

The voters and taxpayers of Jefferson City should think twice about assigning the role of developer to city government. Although hotel guests may be an easy mark for higher taxes, this does not mean that voters should use them to enlarge the portfolio of city hall. Rejecting this tax proposal would tell Jefferson City’s leaders that the residents want responsible, limited government, not government expansion and higher taxes.

David Stokes is a policy analyst for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.