Effects of a Room Tax on Resort Hotel/Motels

The Effect of Lodging Taxes on the Performance of US Hotels

“…If in this situation hotels decided against absorbing the tax, the ramifications of the resulting drop in demand would likely be felt destination wide. A possible consequence of passing on higher prices to guests that has been identified in the literature is what Combs and Elledge (1979) refer to as the "border problem"-a situation in which travelers, wary of the increased price resulting from the tax, would simply forgo accommodations at that destination, and prefer accommodations in neighboring jurisdictions that offer lower taxes (see also Spengler and Uysal 1989). Subsequently, not only would the hotels' own factors of production including the local labor base be underutilized, but the other travel and tourism-reliant enterprises in the region would also incur lost business as a result of the accommodation tax.…”

“…In one of the early studies in the literature on the effects of lodging taxes, Combs and Elledge (1979) assumed demand for accommodations to be nearly perfectly inelastic. Not surprisingly, this assumption resulted in findings that suggested taxing lodging facilities could raise revenue without any significant repercussions for the demand for lodging.…”

“…Because of differences in methodology and underlying assumptions, the existing research has found mixed results. While some studies have claimed that the implementation of hotel taxes does not alter the demand for travel (i.e., Combs and Elledge 1979;Bonham and Gangnes 1996;Aguilo, Riera, and Rossello 2005;Hudson et al 2019), others conclude that these taxes can significantly affect hotel performance (i.e., Mak and Nishimura 1979;Fujii, Khaled, and Mak 1985;Ismail 1992, 2001; S. K. Lee 2014). As indicated, likely reasons for these inconclusive results are (1) differences in methodology and (2) the fact that much of the existing research tends to be limited to specific destinations.…”

Do tourist companies support a greater direct tax burden? The case of Spain

“…Special tax treatment is also often given within general indirect taxation, usually VAT, by applying reduced rates so as to favour the industry (European Commission, 2005;World Travel and Tax Policy Center, 2002).The relevance of these favourable tax treatments makes the literature on them relatively broad, from the early works of Combs and Elledge, 1979, Mak and Nishimura, 1979and Fujii, Khaled and Mak, 1985 However, there is an almost total lack of work addressing direct taxation.…”

Empirical Evidence on the Economic Impacts of Hotel Taxes

“… 6. Other ex ante estimations/simulations are as follows: Combs and Elledge (1979) estimated potential elasticities of room taxes using national U.S. data and showed that such taxes would be regressive; Aguiló et al (2005) estimated the potential impact of a daily tax on tourists to the Baleric Islands, showing that such taxes would have a negative effect on tourist visits.…”