Bill Would Raise NYC Hotel Tax

NEW YORK CITY-The city’s tax on hotel rooms would increase from the current 5% to 5.875% under City Council legislation introduced Tuesday. The measure, which has been endorsed by Speaker Christine Quinn, is intended to help pay for city services. However, a hotel group says a tax hike would devastate the city’s tourism industry.

“Our industry is already grappling with a 20% decrease in hotel revenue over last year, in November alone,” says John Fitzpatrick, president and CEO of the Fitzpatrick Manhattan Hotel and the chairman of the Hotel Association of New York City, in a prepared release. “This tax increase, on top of the 14.54% our customers already pay” in the form of other state and local taxes in addition to the room tax–”is a lump of coal in a holiday stocking that will drive visitors away. The net result will be reduced revenue for the city and the state and increased job losses at hotels and the businesses we support.”

In the release, the association cites an analysis conducted by Sean Hennessey, CEO of Lodging Advisors. Hennessey’s data projected that even a 1% increase on the hotel tax would cause a loss of more than $533 million in room sales and associated visitor spending, 3,716 jobs in the hotel industry and businesses supported by hotels and more than $162 million in wages at hotels and businesses supported by hotels.

“This tax would make New York City’s combined hotel rate the second highest in the country after Houston,” says Hennessey in a release. “Instead of generating new revenues, any increase in taxes could have the opposite effect. More taxes on top of a strengthening US dollar could divert tourists and travelers elsewhere or cause them to shorten their stays.”

Council member Lewis Fidler, who introduced the bill, says in a statement that the tax increase could raise $80 million for the city by the end of FY 2010. “Asking foreign tourists to pay $2.62 a night on a $300 hotel bill is insignificant, especially when you consider that we could use the $80 million generated to pay for 1,000 new police officers and more.” On a per-night room charge of $300, the tax hike would represent an additional outlay of $2.62, he says.

While not taking a position on the proposed legislation, Daniel Lesser, senior managing director and industry leader of valuation and advisory services for CB Richard Ellis’ hospitality and gaming group, points out that generally speaking any increase in travel expenses can have an impact on business. However, he notes that the recession so far hasn’t caught up with Manhattan tourism from overseas. “You walk through Times Square and you hear a lot of foreign accents and see a lot of shopping bags,” he tells GlobeSt.com.

Going forward, Lesser says New York hoteliers have gotten a handle on managing prices in a way they didn’t after 9/11, when travel-oriented websites set the pace with discounts. “The hotels realized that they have to take control of their own destiny” when it comes to room rates, he says. “And they’ve done a good job of holding the line.”

Lesser also tells GlobeSt.com that concerns about an impending oversupply are mitigated by the fact that many of the rooms in the pipeline may not get built. “There are projects that are coming out of the ground and have their financing in place, and then there are those that exist only in somebody’s wishful thinking,” he says. “Those that don’t have their financing right now aren’t going to get done.”