The Lodging Tax: A Quick Review

With HB66, the Revenue Committee wants to create "a statewide sales tax on sales of lodging services". This tax is often sold as a freebie for Wyoming, as most people paying it are people just visiting or traveling through our state on their way somewhere else.

That is a moot point. In fact, this tax is a bad idea, in particular for two reasons.
First, this bill is not introduced in isolation. It comes as part of a package of higher taxes. For example, the Revenue Committee has also sponsored a bill to index the fuel tax. This bill would make the gasoline a lot more expensive for those same travelers supposedly paying the lodging tax.

The indexed gasoline tax would obviously hit us Wyoming residents, too, but the double impact of the indexed fuel tax and the lodging tax is particularly important. Both of them will make it notably more expensive to be a tourist in our state, and the people coming here anyway are likely going to notice the higher fuel prices before they look for a place to spend the night. As a result, they will already be a bit more cautious about costs when looking for lodging.

With the lodging tax added to hotel prices, travelers spending more than one night here, or planning to return, will - on the margin - be more careful with their expenses. This will have ramifications for other services, for example restaurants. It is important to keep in mind that it is not the well-off travelers that will notice the higher cost; it is the family with small kids and a limited budget that comes here to spend a few days.

In addition, the Revenue Committee wants to drastically expand the sales tax to services. While HB67 does not explicitly include lodging services among the industries it seeks to tax, it does want to cover "amusement and recreation services". The national-accounts industry code that the sales-tax bill is using to define taxable services is defined as "arts, entertainment, recreation, accommodation, and food services" which, obviously, would mean that the services sales tax could apply to lodging as well. 

If the Revenue Committee wants to be explicit in exempting hotels, it should use a sub-section of said national-accounts industry code that only applies to "arts, entertainment and recreation". This would also exempt restaurants from having to levy a sales tax.

That said, even if lodging services are excluded from the sales-tax expansion, the very fact that we will have a sales tax of up to seven percent (depending on county) on entertainment and recreational services, adds to the increased cost that tourists will encounter in our state. They will choose cheaper meal options, scale down or skip out on some more costly entertainment and recreation options, and wait with the last fill-up on gas until they have crossed the state line. 

The second reason why the lodging tax is a bad idea has to do with the industry's overall performance. In 2016, accommodation services contributed $712.7 million to our state's economy. It employed, on average, 12,000 people during the year, with seasonal variations from 9,200 at the November low point to 16,000 during the peak in July. The average weekly wage for the entire industry category that includes accommodation services, was just over $361.

When the production value of accommodation services is split up per employee, this industry is among the smallest in our state. At $43,668, each employee contributed less than half to the Wyoming economy than, e.g., a construction worker. More quickly than in other industries, a new tax will dig into business profitability, as well as the ability of these businesses to compensate their employees. 

For comparison, Table 1 reports the per-employee production value in the Wyoming economy by major industrial category:

Table 1
Sources of raw data: Bureau of Economic Analysis (GDP), Bureau of Labor Statistics (Employment)

Mining and Logging $323,624
Construction $94,758
Manufacturing $192,913
Trade, Transportation, Utilities $145,307
Information $174,108
Professional and Business Services $96,034
Leisure and Hospitality $43,668
Other svcs $41,660

All in all, a tax on lodging is a bad idea. Overall, new or higher taxes are bad ideas, but this one is a particularly bad idea. 

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