TourismTax.doc 1

8/13/2019 TourismTax.doc 1

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An Estimate of Revenue

From a Tourism Tax

in Montana

July 2000

Montana Department of RevenueTax Policy and Research Process


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An Estimate of Revenue from a Tourism Tax in Montana

ntroduction and !ummary

Visitors to Montana benefit from state and local government services, such as policeand fire protection. However, visitors do not pay state income or property taxes whichfund general government services. Visitors do pay excise taxes on gasoline andaccommodations, but these taxes are earmarked for specific uses and do not pay forgeneral government services.

One way to have visitors contribute to the cost of general government services inMontana would be to levy a selective sales tax on goods that are bought primarily ordisproportionately by non-resident visitors. his report examines the potential revenuefrom levying a tourism tax at a rate of !".

his report is divided into four sections. he first section presents estimates of theannual number of visitors and their spending in Montana. he second section estimatesthe si#e of the tax base and the revenue that would be collected by a tourism tax. hethird section estimates how much of that revenue would be collected from non-residentsand how much would be collected from residents. he final section estimatesadministration and compliance costs.

$ !" sales tax on prepared food, alcohol sold by the drink, car rentals, tickets tosporting events, concerts, plays and similar events, sightseeing excursion fares,souvenirs, and recreation goods and services would generate revenue of about %!&.&million in fiscal year '(('. )esidents would pay between &(" and *(" of this tax. he

state+s costs of administering such a tax would be at least !" of revenue, andmerchants+ costs of collecting it would be about " of revenue.

"isitors to Montana and Their Purchases

he nstitute for ourism and )ecreation )esearch ))/ at the 0niversity of Montanasurveys visitors to the state every year. he )) estimates the number of visitors, theaverage stay, and how much visitors spend.

he )) estimates there were 1, '2,((( visitors to the state in !111, and they spent

%!.&22 billion while they were here. he ))+s estimates for !11! are 3,&!1,(((visitors and %!.' ( billion spent. 4rom !11! to !111, the average annual rates ofgrowth were '.1" for visitors and 5.!" for visitor spending.

he average stay for a visitor reported by the !111 )) survey was .5 days. 6ith1. million visitors each staying an average of .5 days, there are on average !!(,(((out-of-state visitors in Montana at any time. he state+s resident population is about22(,(((. hus, on average, !!" of the people in Montana are out-of-state visitors.

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able ! shows the ))+s estimates of how visitor spending was divided between eightsectors of the Montana economy in !111.

he retail sales and miscellaneous categories are composed of many specific types ofpurchases. 4or the purposes of estimating revenue from a tourism tax, it is useful to re-categori#e these items. able ' shows visitors+ estimated retail and miscellaneousspending reorgani#ed into four categories.

)ecreation includes ski e7uipment, lift tickets, sporting goods, outfitters, golf fees, bait,and hobby supplies. 8on-tourist purchases includes items such as clothing, householdgoods, farm supplies, appliances, and used cars. his category is relatively largebecause 9illings is a regional trade center serving northeastern 6yoming, as well aseastern Montana.

5

!ector # million $

$ccommodations '35.&(% !3.'(" $uto )ental and )epairs &&.3( 5.&("

ransportation 4ares 2.(( (.&(":asoline ; Oil 5&'.1( ''.'(")estaurants ; 9ars '1!. ( !2.5(":roceries ;


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The Tourism Tax ase and Revenue

he )) visitor spending estimates point out seven areas of significant spending bytourists?

sales of prepared food@ alcoholic beverages sold by the drink@ tickets to events such as plays, concerts, and sporting events@ car rentals@ sightseeing fares@ recreation@ and other souvenir items.

hese items are included in the tax base for the revenue estimate provided here.

he primary source of information for estimating the tourism sales tax base is the !113=conomic Aensus, which was conducted by the Aensus 9ureau of the 0< Bepartmentof Aommerce. he =conomic Aensus gathers detailed information on business activityat the state level. he tax base estimates presented here are based on sales ofbusinesses grouped by types of business. Many businesses sell several types ofproducts, but all sales by a business are reported together. o estimate sales forspecific types of goods and services, it is necessary to make estimates of how someindustries+ sales are divided between the various categories of goods and services.

he Aensus 9ureau is scheduled to begin publishing estimates of sales grouped bytypes of goods and services in $ugust '(((. his product line sales information couldbe used to refine the estimates presented here.

>repared 4ood


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able 5 shows estimated receipts for these establishments from the !113 Aensus.

f all food sold in cafeterias is included, the value of taxable sales is %*2&.! million.=xempting sales in workplace cafeterias would reduce the tax base by an amount lessthan %* million.

Brinks laces.D he !113=conomic Aensus estimate of receipts from these establishments is %!&'. million.


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4ood, Brinks, and Other tems arks

Montana has a " use tax on lodging charges. he lodging facilities use tax appliesonly to lodging charges, and excludes other charges for items such as food,transportation or entertainment. 4ood, drinks and other items sold at lodging facilities

could be included in the base for a tourism tax.he value of these other sales can be estimated by taking the difference between total

revenue of lodging facilities and room charges, which currently are taxed. wo=conomic Aensus industries are subEect to the lodging facilities use tax? D raveler

$ccommodationD and D)V >arks and )ecreational Aamps.D Aombined revenue forthese industries for !113 was %55 .1 million. Codging facilities use tax revenues for!113 were %1.3* million, which implies a tax base of %' . million.


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category of automobile repair. n !113, revenues totaled %' 2 million in Montana.Visitors are !!" of the people in the state on the average day. f they make !!" ofexpenditures on car repairs, their spending on repairs would be %'3.5 million.


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transportation to tourists because there are so few firms in them. 4or these subsectors,it is necessary to estimate sales either as a fraction of the sales of a larger sector thatcontains the sector of interest or as a multiple of the sales of a smaller sector that iscontained in it. able * shows receipts for sectors that were reported by the Aensus9ureau, the estimated share of those receipts that would be subEect to a tourism tax,

and the estimated tax base.

he =conomic Aensus estimate for axi


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passenger subsector have the same average revenue as firms in the sector as a whole,and !(" of their revenue is from flights for tourism purposes, then .&" of the revenueof the 8onscheduled $ir ransportation sector would be subEect to a tourism tax.

he total is relatively close to the )) estimate of visitors+ spending on transportation

fares.


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>otential )evenue

able 3 shows the calculation of potential revenue from a selective sales tax on touristitems.

he first column shows the items included in the tax base. he second column showsestimated sales of those items in !113. he third column shows estimated sales in'((' assuming an average annual rate of growth of 5.!" from !113 to '(('. his isthe rate at which spending by non-resident visitors, as estimated by )), grew from

!11! to !111. he fourth column shows the revenue that would be generated in fiscal'((' with a tax rate of !".

9ho 9ould Pay:

4ood and drinks account for two-thirds of the revenue from a tourism tax, but two-thirdsof sales in these sectors are to residents rather than non-residents. t is not known howticket and recreation services sales are divided between residents and non-residents,but sales to residents probably are significant. Most sales in the car rental, sightseeingfares, and souvenirs sectors are to non-residents. he fraction will depend on exactly

which goods and services are taxed.

!(

ax 9ase -tem!113


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able 2 shows an estimate of taxes that would be paid by nonresidents in each of thesectors.

he estimate for food and drinks is the ratio of the ))+s estimate of non-residentvisitor spending on these items to the =conomic Aensus estimate of total spending.

$lmost all car rentals are assumed to be made by non-residents because non-residentrentals account for almost three-fourths of total rental and lease payments. heremainder of revenue in the car rental and lease sector would account for fewer than5((( leased cars in Montana. he fractions of sales assumed to be made to non-residents in the other sectors are very rough guesses based on the fact that residents

make significant purchases in the recreation and tickets sectors, but not in sightseeingfares and souvenirs.

6ith these estimates of resident and non-resident purchases in each sector, non-residents would pay '" of the tourism tax. =ven if the fraction of sales to non-residents were 1(" for tickets, sightseeing fares, souvenirs, and recreation goods andservices, residents would still pay &(" of the tourism tax.

Cimiting the tax to the three categories where non-residents are estimated to account forat least three-fourths of the sales would limit tax receipts to %!.& million.

Administration and 4ompliance ssues

$ tourism tax would re7uire state resources for administration and would impose costson merchants who collect the tax. here have been several studies of theadministration and compliance costs of state sales taxes. he results of these studieshave been summari#ed by Iohn Bue and Iohn Mikesell, in their book


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