New Study Reveals Cities With The Highest And Lowest Taxes For Travelers

taxesOn a recent road trip, I stopped for the night in suburban Indianapolis and was happy to find a nice hotel room for just $91 per night. But in the morning, when I saw the receipt that was slipped under the door and noticed a total bill of $106.47, I thought that there was some mistake.

In huge cities like New York and Chicago you expect punitive taxes on travel related expenses, but could the hotel tax rate really be 17% in the Hoosier State? A stroll down to the front desk confirmed that there was no mistake and according to a newly released report from the Global Business Travel Association (GBTA), Indy has one of the highest hotel tax rates in the country.

I don’t know about you, but when I’m planning a trip, I don’t think much about taxes, but I probably should because in some places they can really drive up the cost. I tend to look at the room rate or the rental car rate itself, and by the time I get to the confirm page where you see the taxes, I’ve more or less already made my decision and somehow I think I’m paying $91 for the room in Indy, rather than the $106.47 it will come to with taxes.Since the start of the Global Recession, politicians in cash strapped municipalities all over the country have been looking for ways to make up for budget shortfalls and hitting out-of-towners is a convenient way to escape the wrath of local voters. According to the GBTA’s fifth annual report, “discriminatory travel taxes and fees enacted on travel-related services impose an average increased cost on visitors of 57% over general sales tax.”

So what are the most and least taxing cities for travelers? It should come as no surprise to see New York and Chicago on the taxing list, but why are Portland, Oregon, and a few places in California in the least taxing column? Portland actually shows up in the top ten least taxing list because Oregon has no sales tax, but it also shows up in the top most discriminatory taxes list (which doesn’t count taxes that apply to everyone, just those that apply to travelers) because it has a very high rental car tax rate.

A number of municipalities in California lowered their sales tax rate in 2011 and made the least taxing list based on that. The biggest surprise for me is the fact that Honolulu made the least taxing list.

Highest Overall Tax Burden for Travelers

The following figures reveal how much a traveler would pay in taxes for one day of travel, including a $103.45 hotel room, a $55.99 rental car and $91.22 in meals at restaurants. Chicago hits the trifecta with crippling taxes on hotels and rental cars plus a high sales tax rate, giving it the overall tax crown.

Chicago- $40.33
New York- $37.98
Boston- $34.83
Kansas City- $34.58
Seattle- $34.43
Minneapolis- $34.32
Cleveland- $34.22
Indianapolis- $34.19
Nashville- $34.13
Houston- $33.51

Lowest Overall Tax Burden for Travelers

Ft. Lauderdale, FL- $22.21
Ft. Myers, FL- $22.21
West Palm Beach, FL- $22.21
Detroit, MI- $22.37
Portland, OR- $22.45
Orange County, CA- 22.79
Burbank, CA- $23.74
Ontario, CA- $24.08
Honolulu, HI- $24.38
Orlando, FL- $24.50

New York City has the highest hotel tax rate, followed by Nashville, Indianapolis and Houston. Chicago has the highest rental car tax rate, followed by Boston, Las Vegas, and Minneapolis.

One might ask what these cities are doing with the tax revenues they collect from travelers. Are they using the money to promote their destination or to enhance the tourism infrastructure? The answer varies from place to place, but looking at Chicago, for example, just 1% of the 16% hotel tax goes toward tourism promotion, according to the study.

In most European countries, prices for hotels, rental cars, meals and almost everything else already include the applicable taxes. As a consumer, I find this very straightforward in that you know exactly what you’ll pay, but it also masks where your money is going. You might think that 100€ you’re paying for a hotel room is pricey, but you may not be aware that the hotel is losing a large chunk of that revenue to the tax collector.

Do you pay attention to the tax rates when planning travel, or are they just an afterthought? If the city has a high hotel tax rate, will you choose a less expensive hotel or go to a different city altogether? Would you like to see hotels and rental car companies display or explain the tax rates in a more transparent way when you book through the Internet or over the phone?

[Photo by 401K 2012 on Flickr]