Property Rights

TRT—Come On, It’s Free!

According to the Utah State Tax Commission, a transient room tax (TRT) can be imposed by a county, city, or town.  TRT is essentially a tax on hotel rooms (hotels, motels, inns, trailer courts, campgrounds, etc…).  Proponents of TRT in various parts of Utah claim that TRT is a tax on visitors or tourists (not the hotels themselves), and that it costs locals, including local businesses, nothing.  They claim that the local area will benefit greatly by spending TRT, and at no cost to the locals! It sounds like a magic pot of gold, right? As with the gold, it’s too good to be true.

The arguments in favor of TRT are flawed on many levels.  First of all, suppose that the tax really was just paid by tourists and visitors, and there really was no cost to the locals.  Upon what moral authority is the government justified in taxing someone (even an “outsider”) for nothing more than doing business with local merchants (private individuals and private businesses)? Aren’t local businesses already paying their property taxes? On what basis can a visitor be charged an additional, arbitrary fee by the government for passing through and staying at a hotel? If this is accepted, then why not also impose a tax for staying at someone’s home? I submit that there is no justification for this method of taxation.

In a previous post, I argued that all taxation is essentially theft, and this case is no different. Government has no inherent right to take any portion of that which private individuals have produced. In the case of TRT, it is not justified merely because the tax is (in theory) being paid only by visitors. The fact of the matter is that it is being paid by local business owners, but even if it wasn’t that would not change any of the underlying principles.

The argument that TRT is paid by visitors and not by local citizens is utterly false. Supply and demand ultimately determine price, and taxes are simply a factor included in a merchant’s determination of what he can charge a willing buyer. Adding an additional tax to the price of any service means one of two things. On one hand, it means that the merchant will keep the price the same and thereby profit less from a sale. In this case, not adjusting the price keeps demand constant, but it means that the merchant will make less money. On the other hand, the merchant will keep his profit margin static but simply add the tax to the total price, in an effort to pass it on to the buyer. With a raised price, demand will decrease, and so while the merchant’s profit margin remains constant, his income over time will decrease as a result. The basic laws of economics insist that the demand for a good must decrease if the price increases.

To illustrate this point, consider adding not just one tax on visitors, but twenty. If adding an additional tax to the cost of a service does not in fact decrease demand, then adding twenty taxes would not affect demand either. Government entities could easily finance all of their activities by simply charging the tourists additional taxes.  Local taxes could all be eliminated!  Localities could provide lavish services for their citizens, and it would all be free. Sounds like a utopia, but in reality it’s just a false mirage. Such tax proponents must argue that a service at triple the price of what it would be without the taxes will not affect demand. This position is clearly ludicrous on its face.

Let’s take a look at San Juan County to see the real-life effects of TRT.  San Juan County is the largest county in the state geographically, but one of the least densely populated (14th least populated out of 29).  It is the poorest county in the state from an average household income measure, but San Juan County has the highest tax rate in the state, coming in more than 70% above the state average.

San Juan County citizens loudly supported the implementation of TRT and other tourism taxes.  These taxes were promoted as an additional source of revenue for the county as an alternative to taxing the local citizens even more.  The theory was that tourists use this county’s airports, the trails, visitor centers, sewer systems, utilities, Emergency Medical Services, swimming pools, museums, recreation facilities, law enforcement, search and rescue, etc., and that it was only logical that they help pay for all of these things. In theory, a predetermined portion of these funds would be used to promote tourism and the remaining portion could be allocated to fund the above listed infrastructure costs.

The reality, which was predictable to those who have paid attention to how government really works, is that much of the funds have been absorbed by the office of economic development that was created to promote tourism in the county. Even the funds that have been tagged as “infrastructure” have been used to support organizations that never were county funded. There has been virtually no reduction in the burden to local tax payers. For instance, this government office managed to find in its budget $500,000 to donate to a private entity (The Four Corners School), an entity that is not and should not be funded by local taxpayers, an entity which is at odds with the principles espoused by the local population, and an entity which most local residents do not support.  This government office now has three full time employees, and has reportedly purchased cars in an effort to spend the money it has been allocated.  All this in the poorest and highest taxed county in the state.

How could this be?  The county commissioners authorized the tax and are supposed to be responsible for the proper use of the tax revenue generated.  According to law, the commissioners are supposed to give the advisory board a budget, and the advisory board is supposed to give the commissioners a priority listing of things they would like to do. But this has not been the case. San Juan County has not authorized the office of economic development to act unilaterally, but rather the department is supposed to be directly accountable to the county commissioners.  But somehow the county commissioners have been removed from the equation. The commission has been derelict in its duty and the taxpayers have sat idly by as the government has grown, along with its voracious appetite which is never satiated.  The department has become an autonomous entity, sneering contemptuously at any attempt by the elected legislative body (the county commission) to reign it in.

It is especially interesting to note what has happened while taxpayers have sat silently on the sidelines, with pocketbooks forcefully opened for the tax collector’s pillaging. Between 2003 and 2009, San Juan County general funds nearly doubled, going from $6,524,920 in 2003 to $12,739,374 in 2009.

One San Juan County commissioner has proposed that the tourism taxes be given directly to the cities in the county to use as they see fit (and as the law allows).  It comes as no surprise that he has been met with vicious resistance from those that have been building up their little kingdom and the friends they have been feeding at the expense of the taxpayers.  The back-room politics have hit an all-time high and, not surprisingly, those supporting transparency and reduced government find themselves being maligned and attacked while the majority of those they are trying to protect either ignore the issue altogether or simply believe the misinformation and propaganda being issued ad nauseum.

Like all government intervention gone awry, the solution is to let individuals retain their property (which includes money) and let people make decisions for themselves.  If the county office of economic development and tourism promotion is truly effective in the market place, then let businesses voluntarily pay them to promote tourism. Are we to believe that local business owners are just too stupid to see the value and that government must necessarily confiscate a portion of their income to turn around and use to promote tourism that is for their own economic well-being?

The tax should be eliminated, as it is an illegitimate imposition into the marketplace, and an unfair burden upon merchants offering their goods and services to the public. While it remains, however, the funds should be turned over to the local municipalities instead of a bureaucratic office that is accountable to no one. That would be, at a very minimum, a step in the right direction.