Unintended consequences of a new tax on tours
In the final days of the last legislative session, the Rhode Island General Assembly approved a new 7 percent sales and use tax on package tours and scenic and sightseeing transportation. The goal of this new tax is clear: to generate approximately $1.1 million in expected revenue to help plug Rhode Island’s ever-growing budget deficit. However, what were not closely examined were the unintended consequences this new tax could, and would, have on Rhode Island’s hospitality and tourism industry.
Hospitality is one of the driving forces that fuels Rhode Island’s economic engine. It is the fourth largest industry in the Ocean State, and restaurants, hotels and other hospitality-driven businesses, such as the tour providers who share their vast knowledge with hundreds of thousands of visitors each year, are responsible for more than 60,000 jobs.
In fact, on the whole, tourism expenditures in Rhode Island account for approximately $4.99 billion. It also generates 5 percent of the total Gross State Product for Rhode Island, as well as 9 percent of all state and local tax revenue. That’s a lot of money, and that’s why the Governor, the General Assembly, and other policymakers need to focus on providing hospitality-driven businesses with the tools needed to continue to grow our industry over the long term, instead of looking to hospitality for new opportunities to generate additional tax revenue.
Although the new sales and use tax on package tours and scenic and sightseeing transportation, which will be instituted on all applicable business transactions beginning Oct. 1, will provide the cash-strapped state with an additional $1.1 million in revenue, RI Hospitality Association (RIHA) and the Newport & Bristol Country Convention & Visitors Bureau (NBCCVB) feel the long-term damage caused by the unintended consequences created by this new tax will far outweigh the short-term gain.
RIHA, NBCCVB, and our members, who we have heard from repeatedly over the course of the summer, feel this tax will ultimately increase the cost of visiting Rhode Island, therefore reducing the total number of visitors to our state, inevitably leading to layoffs and lost jobs. Many of these concerns have been voiced at public meetings held with David Sullivan and his staff at the Rhode Island Division of Taxation, who have thoughtfully listened to our concerns and carefully used our feedback to help determine how this tax will be best implemented to minimize its impact.
Although one of Rhode Island’s greatest treasures is our hundreds of miles of pristine shoreline, another asset, which is vital to attracting visitors, is the historical sites found within our borders. Nowhere is this truer, and more important, than Newport.
Newport’s Gilded Age mansions, the Cliff Walk, Fort Adams State Park, Touro Synagogue, the International Tennis Hall of Fame, and hundreds of other sites, many historic, others culturally interesting, have helped put Newport on the map as a destination for cruise ships.
So far, in 2011, 45 large cruise ships have either used Perrotti Park in Newport as a port of call, or are scheduled to use the park. By the end of the season, those ships will have carried a combined 95,260 passengers, most of whom will debark the ship in Newport and spend time and dollars in the City-by-the-Sea. According to the Cruise Line International Association, each passenger will spend, on average, just under $124 while in port. That accounts of a staggering $11.79 million being pumped into the Newport economy by the passengers on these ships, alone.
What some people, lawmakers included, may not realize is that these cruise ships did not choose Newport overnight. Rhode Island’s hospitality industry has been lobbying for more than 20 years to establish Newport, and all it has to offer, as a premier port of call for many of these cruise lines. Our fear, which is supported by the fate’s of cities along the Eastern seaboard which have instituted similar taxes, is that cruise lines will decide the cost of doing business in Newport is now too high, forcing them to haul up anchor and select a new destination to bring their passengers. These new destinations would be in Connecticut, New Hampshire, and Maine, where no tax is levied on package tours. Once these ships are gone, they will not return.
Since the creation of the tax, some members of the Rhode Island General Assembly have listened to our concerns, realizing both the immediate and the long-term damage that could be inflicted on Rhode Island’s hospitality industry would have a devastating effect on the health of the state’s overall economy. Just 24 hours after an Aug. 22 meeting where concerned business owners voiced their concerns, the Senate’s Newport Delegation, Senate President Teresa Paiva Weed and Senator Louis DiPalma, called for the repeal of the sales and use tax on package tours and scenic and sightseeing transportation. Senate President Paiva Weed has promised to file legislation for a repeal early in the 2012 session, and advocate for its passage. RIHA, NBCCVB and our members are thankful for their support.
However, we must continue to work for the repeal of this troublesome tax, which the hospitality industry will have to contend with beginning upon its implementation Oct. 1, until the day that it is officially repealed; though we do not know when, or if, that day will come. That is why RIHA and the NBCCVB urge all hospitality businesses to write their legislators, and to write us about the impact this is having on your operations.
Tourism is one of the most important industries in Rhode Island. With vast potential for continued growth, the state must continue to invest in all aspects of tourism, not create new taxes to hurt it. By marketing Rhode Island as a leisure destination flush with world class dining, an expansive arts scene, wonderful historic sites, and the best beaches around, we will continue to attract more visitors each year who are ready and willing to contribute millions and billions of dollars to our economy, benefiting each and every resident of our great state.
Dale J. Venturini is the president and CEO of the RI Hospitality Association. Evan Smith is the president and CEO of the Newport & Bristol County Convention & Visitors Bureau.