Battle over tourism tax dollars

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It’s a battle over tourism tax dollars that one tourism official calls a civil war, pitting local communities and tourism councils against a state government that is searching for ways to close this year’s $150 million budget deficit and is trying to find new revenues for next year.

At stake is millions of tax dollars associated with lodging stays in Rhode Island, the way the state apportions tax dollars collected from Airbnb, and competing proposals for an increase of 1 percent in the hotel tax.

“This has created a little bit of a civil war,” said Evan Smith, executive director of Discover Newport, Newport and Bristol Counties tourism council.

It’s a civil war that’s been created by the rise of Airbnb to a multi-billion-dollar company that is poised to go public later this year. It’s a company, Smith said, that has evolved into a booking agency for not only traditional Airbnb’s, but also hotels.

“Airbnb is aggressively moving into being a reservation service for hotels,” Smith said.

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As a result, under the current formula, as Airbnb books traditional hotels and inns, it takes revenues from the tourism councils and Providence Warwick Convention and Visitors Bureau. “In case of the destinations,” Smith said, “Airbnb is not paying into the (local) programs.”

The state’s visitor bureaus are charged with promoting the areas they cover. In the case of Discover Newport, it’s the nine communities of Aquidneck Island and along the East Bay.

The councils are approaching their local communities, asking them to encourage legislators to support efforts to change the Airbnb formula to be consistent with other hotel and lodging tax formulas.

The formula is related to the 5 percent lodging tax collected by the state. That 5 percent is in addition to the 7 percent state sales tax, and 1 percent local tax.

Three or four years ago, Smith said, Commerce RI negotiated a separate deal with Airbnb that resulted in a split of the 5 percent tax revenue, with 75 percent allotted to Commerce RI, and 25 percent of revenues collected in the district only to the local communities.

That differs from how the 5 percent lodging tax is split for hotels and inns. Under that formula Commerce RI receives 25 percent of the 5 percent collected statewide, the local community receives 25 percent of the 5 percent collected in the district, the Providence Warwick Convention and Visitors Bureau receives 5 percent collected statewide, and the tourism councils receive 45 percent of the tax collected in the district only. (sound confusing, see the accompanying charts). It’s this formula that the tourism council wants to also be applied to Airbnb.

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Smith said the tourism councils are receiving support from the cities and towns they cover.

Also, at issue is a proposed 1 percent increase in the hotel tax. Governor Raimondo’s budget includes an increase in the 5 percent lodging tax to 6 percent, with the additional revenue going directly to the general fund.

In Newport, the City Council is asking local legislators to request an additional 1 percent local lodging tax, with the funds going specifically toward schools, said Mayor Jamie Bova, putting the city and governor on a collision course.

Bova and other Newport councilors quickly turn to the massive school projects that were identified by the Rhode Island Department of Education (RIDE) that resulted in a $250 million statewide bond to match local building projects.

The RIDE report said it would take upwards of $600 million to bring schools in the state to a safe level, and $2.2 billion to bring all schools to satisfactory condition. The state reimbursement formula to local communities could range from 35 percent to 55 percent.

Local communities around the state are looking at local bond issues that could result in significant tax increases. In Newport, depending upon whom you talk to, estimates have ranged from $100 million to $180 million to build a new high school. Rogers was rated the school in the worst condition in the state. Debt service adds millions to the cost.

“We’re looking at making pretty bold moves in the city that allow us to be successful in the long run,” said Bova, particularly focusing on education and the economy. “We have to be able to show we are committed to the schools, and that takes time and money.”

“I do believe in Newport, we’re at an infrastructure crossroads,” Bova said. “The infrastructure is so important to our economy you can’t ignore it. You can’t ignore the condition of Rogers High School. You can’t ignore the other things that go along with it.

“…The reality today is there are real issues that we can really define well in which the government needs the money, the residents need the money to support these initiatives.”

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