KEVIN LEININGER: Some ask: With hotel taxes already rising, is a rate increase really needed?
It’s no secret that technology usually evolves more quickly than the law’s ability to regulate it. Just ask taxi operators whose cabs must be licensed and inspected — at considerable cost — while decentralized competitors like Uber operate largely unscathed.
A similar imbalance has existed in Indiana’s lodging industry, but thanks to a new law requiring Airbnb and other forms of short-term internet-driven lodging to pay the same innkeepers taxes their competitors do, a lot of new revenue will soon be available in Allen and many other Indiana counties.
As a matter of consistency and fairness, there’s no doubt the law passed in 2016 but effective July 1 was overdue. Indiana had been just one of three states that didn’t charge a sales tax for online short-term (that is, less than 30 days) rental platforms.
But with County Council expected to decide later this month whether to boost the hotel tax from 7 percent to 8 in order to provide an additional $750,000 per year for Visit Fort Wayne’s marketing campaigns, the additional revenue could further complicate a vote that was already too close to call.
According to an estimate prepared by the convention and tourism organization on the basis of reported 2018 Airbnb Allen County sales of about $1.4 million, the new tax will generate $93,587 in additional innkeepers revenue per year. At the current rate of 7 percent, the Grand Wayne Center would get $66,848 of that, with Visit Fort Wayne getting the remaining $26,789.
“That’s a drop in the bucket (compared to what we need),” said Visit Fort Wayne CEO Dan O’Connell.
Compared to Visit Fort Wayne’s annual budget of $2.2 million, that $26,789 indicates the Airbnb tax is indeed small potatoes even if council increases the hotel tax to 8 percent. With that extra money, the organization would expand efforts to attract national conventions, promote adaptive sporting events at Turnstone and elsewhere, boost seasonal ad campaigns, attract more travel writers and do a host of other things it cannot now afford.
But as I reported last month, revenues from the hotel tax are on the rise even without the extra 1 percent O’Connell wants. According to the Allen County Auditor’s office, the same hotel tax that generated $4.36 million five years ago topped $6 million in 2018.
To West Central Properties owner Mike Anderson, that trend — augmented by the new online tax — should make council members think twice before supporting an increase.
“I would vote against it,” said Anderson, who fears that extra 1 percent could deter visitors instead of attracting them. “Fort Wayne could be a regional draw but we won’t be if we make taxes oppressive.”
When it comes to making Airbnb collect innkeepers taxes, however, Anderson’s on board.
Until 2017, Anderson was in the apartment business, with about 200 units in Allen County, most downtown. Then he bought the LaSalle Bed and Breakfast and the adjacent Sion Bass House on West Washington Boulevard and now also offers 10 short-term rooms through Airbnb and other services. Anderson said he’s always paid the innkeepers tax “but I don’t believe anybody else was. It was a huge disadvantage.” The Sion Bass House was built in 1842; Bass was a local businessman killed at the Civil War battle of Shiloh.
With about 200 Airbnbs in Allen County, Anderson believes the new tax will exceed Visit Fort Wayne’s projection and thinks council should wait for the real numbers before increasing the innkeepers tax. It’s a good point, and some council members have expressed reluctance to support higher taxes when revenues are already on the rise.
But while skeptics point to the 1,000 hotel rooms planned or under construction as proof the current tax will generate even more money in the future, O’Connell argues the opposite.
“Our inventory (of rooms) is going up dramatically, so we need to increase our marketing. We’re working for the future, and are in a good position if we can get the word out.” In other words, the addition of 1,000 rooms could oversaturate the market and drive room prices down unless the number of visitors increases by at least an equal amount.
Because a beefed-up marketing campaign would require a predictable and sustainable revenue stream, I still believe the argument for the extra 1 percent is stronger than the argument against it. But the increased revenue available now makes Anderson’s go-slow approach logical, too. No wonder even O’Connell admits chances of passage are no better than 50-50.
This column is the commentary of the writer and does not necessarily reflect the views or opinions of The News-Sentinel. Email Kevin Leininger at email@example.com or call him at 461-8355.