Equity……………………………..........NO

Efficiency…………………………........NO

Simplicity…………………………........YES

Fair Revenue Generation………....NO

Effective Stimulus to Growth…...NO
 

The legislative intent in passing PA 263 was to create a funding mechanism for Michigan’s more populous counties to develop infrastructure and promotion programs primarily to attract convention and meeting business to these counties. The burden of the tax is on the accommodations sector which was also presumed to be the major beneficiary of investments of tax revenues. In concept, the existing tax comes close to meeting all the Principles of Intelligent Taxation with the exception of the principle of Efficiency. Yet, even if the tax is set at the maximum allowable rate of 5%, it is relatively low in comparison to accommodations tax rates in comparable convention markets. Furthermore, accommodations providers might lower their room rates to maintain price competitiveness and still grow profits from increased business generated by wise investment of tax revenues.

While the above scenario may encapsulate what legislators intended, PA 263 has produced mixed results. Historically, county governments have liberally interpreted what constitutes tourism-related infrastructure and promotion, often over strong objections from accommodations providers. Tax revenues have even been used to build and promote hotels that compete directly with other hotels, which in essence are taxed to benefit a competitor. How the funds are allocated remains a constant source of bickering both among different tourism interests as well as a wide variety of other groups seeking funding for almost any imaginable project. And, as might have been anticipated, once PA 263 revenues accrue in county treasuries county governments are reluctant to allow tourism interests, including the accommodations sector, to dictate how they will be spent.

Extending what is in many respects a failed tax strategy to other Michigan counties is at the outset questionable. The detailed assessment reported above indicates that the proposed extension fails, totally or in part, to meet any of the five Principles of Intelligent Taxation. It is a unique new tax not paid by businesses other than accommodations providers, which already contribute to the cost of county services through the property tax as do other businesses. Accommodations providers would have no special say in how revenues would be used, and there is ample evidence from what is proposed and the implementation of PA 263 in counties already authorized to impose the tax to assume that tourists or tourism businesses will not benefit any more than residents or other industries from expenditures of these tax revenues. Finally, while the tax would be simple to collect and would not increase accommodations costs dramatically, prior experience in PA 263 counties confirms that pressure to increase the tax rate, once county government has access to a new revenue source, is highly likely.