Analysis: Tourism industry wants to pay its own way

Members of the Joint Revenue Committee faced an unusual phenomenon at their meeting last week in Buffalo: Representatives of an industry appearing in unison to request a tax hike.

Various representatives of Wyoming’s tourism industry requested a higher tax on their sales, hoping the money will help the state boost their business.

An industry lobby and the Wyoming Office of Tourism brought the idea of a one percent “tourism tax” on most travel and leisure sales. They wanted the tax revenue to be earmarked for the Office of Tourism, freeing roughly $25 million each biennium from that agency’s budget for use elsewhere. Hotel owners and restaurateurs threw their support behind the idea.

It was a change for a committee used to enduring hours of arguments against any tax hikes, and a motion to draft the bill passed easily.

The Revenue Committee has been working to find funding solutions for a $360 million a year deficit in funding for K-12 education. The tourism tax would represent a relatively small portion of that deficit. However, taxes that hit out-of-state visitors instead of Wyoming residents have been suggested by top lawmakers as a place to look for funding solutions. Perhaps more notable last week was the fact that business owners supported the tax increase because they saw it as an investment in their industry.

For a legislature grappling with unpopular taxes, there could be a lesson in the tourism industry’s willingness to chip in more.

Support

The idea was presented to the committee by Diane Shober, director of the Wyoming Office of Tourism — a state agency — and Chris Brown, the director of the Wyoming Lodging and Restaurant Association, an industry trade group.

In part, they were trying to stave off an increase to the lodging tax that would hit specifically the hotel industry. The Revenue Committee wanted to consider a lodging tax of 2-3 percent. Several people, including Brown, argued such a lodging tax increase could deter visitors, while the broader tourism tax has a gentler impact.

“They took the theory that if everybody just pays a little, nobody’s gonna have their sector adversely influenced,” House Revenue Committee Chairman Mike Madden (R, HD-40, Buffalo) told WyoFile in an interview.  

The agency and trade group had spent much of the summer holding meetings in different communities around the state, Brown told WyoFile. Representatives from the two institutions pitched the tax idea as a way to create a “more sustainable funding model for tourism,” he said. Like most state government entities, the agency, which promotes Wyoming tourism internationally and throughout the U.S, had seen a 13 percent budget cut over the last couple of years.

“You’re at the mercy of the state’s economy,” Brown said, “and the ebb and flow of the election” cycle. By taxing itself, the industry could ensure the money for promoting travel to the state didn’t continue to dwindle.

Brown estimated they had spoken to approximately 100 “industry leaders” across the state. Only two had been against the idea, he said.

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In public testimony from business owners last week, it was clear they value the state agency’s efforts.

“We believe that the Wyoming Office of Tourism is integral to making sure that our tourism industry continues to grow,” said Jeff Golightly, the vice-president of Gardner Capital Management, which manages the Snow King Mountain Resort in Jackson. Golightly said the ski hill has benefitted from the Office of Tourism’s marketing. He and other industry leaders understood that with revenue down a new funding source would be needed, he said. He then offered the lawmakers a solution.

“Tax us,” he said.

Though not on the Revenue Committee, state senator and tourism business owner Ogden Driskill also testified in favor of the Office of Tourism’s work.

“When they target the northwest, we see [license] plates out of the northwest, when they target Minneapolis, we can see the results,” Driskill said. “We can guarantee it works.”

Challenges to come

Despite the widespread support at the meeting, there were also concerns with the bill. It could face significant challenges passing the Legislature.

Many tourism and leisure activities have been excluded from Wyoming’s sales tax, including things like the sale of lift tickets and greens fees for golf courses. The draft bill was written to capture a wide swathe of sales falling under the tourism and leisure industry categories, and would include those activities that have previously escaped taxation.  

The Revenue Committee will have to decide whether it excludes those activities from the new tax, which could then complicate its collection and reduce returns, Department of Revenue director Dan Noble said.

Plus, the unified front seen in Buffalo last week doesn’t represent every business that would be affected by the new tax. Restaurants and bars across the state would be captured by a tax on leisure activities, and many of those businesses are built on local customer bases. They don’t benefit from Wyoming tourism promotion.  

“We’ll get some pushback from certain restaurant people,” Madden told WyoFile, and “they won’t be from Jackson.”

In addition to a general aversion to tax increases, lawmakers will challenge the earmarking aspect of the Office of Tourism’s idea. It’s something the Legislature has proven reluctant to do in the past, Sen. Dave Kinskey (R, SD-22, Sheridan) told Shober and Brown. In earmarking, lawmakers lose the direct control over an agency’s budget they have through appropriating to them from the state’s general fund.

“People are going to assume that the first thing that’s going to happen is the [number of staff] at the Office of Tourism is going to go up,” Kinskey said. The Office of Tourism should be ready to assure lawmakers the money will go to promoting the state and not internal expenses like salaries, he said.

Madden also said he was against earmarking. The costs of the industry are not borne solely by the Office of Tourism, he said, noting that infrastructure like state parks and rest stops draw on other agency budgets.

“Tired of going with their hand out.”

Even if the funds aren’t earmarked in statute, Madden said, the tax will give the Office of Tourism ammo when it goes before the Joint Appropriations Committee each year to argue for its budget. They’ll be able to point directly to the revenue benefits they bring the state, and in doing so will make it harder for lawmakers to make cuts.

The offer to pay its own way is at the crux of the tourism industry proposal’s uniqueness. “They’re tired of going with their hand out,” Madden said.

Paying more is perhaps an easier sell to the hospitality industry, where there’s a direct link between the Office of Tourism’s marketing endeavors and the out-of-state plates filling parking lots, as Driskill testified. For the other industries the state may need to tax to wean itself off mineral dependency, pointing out the benefits of increasing tax revenues is harder.

Brown said he didn’t know whether the same argument could be made to other industries to get their support for taxes.

“I can’t say that every industry is as fortunate as tourism to be able to take a look at a self-sustaining model like we are,” he said. “Regardless of level of support for our initiative, nobody questioned the value of what the Office of Tourism does.”

Some state officials have said Wyoming’s low-tax environment hasn’t led to business growth, suggesting taxes on other industries could also have value if the revenue was invested back into the state.

One obstacle to growing a business in the state is the low population and thus low workforce. At a June Revenue Committee meeting, Rep. Mark Kinner (R, HD-29, Sheridan) said investing in amenities for Wyoming’s towns and cities could help overcome that hurdle by encouraging young people to stay in Wyoming. The Governor’s ENDOW committee also continues to examine how the state can best invest in diversifying its economy, including through more focus on community colleges and technical training. Such investments take money, but Wyoming’s Legislature has thus far continued to prioritize near-term savings through budget cuts over generating new revenue.

Tourism also is unique in that the state clearly benefits from taxing out-of-state visitors, even just with existing sales taxes. Attracting other new businesses can represent a burden on state coffers, because their employees don’t pay in taxes the equivalent of the cost of public services — like education — that they use, Madden has said.

Not so for tourists, he told WyoFile last week.

“They come with a full suitcase of clothes that are all cleaned up and they come here to spend money, and when their vacation is up they pack their suitcase up with dirty clothes and go home and all they’ve left is their money,” Madden said. “It’s a marked contrast to these so-called economic incentive programs for manufacturing and stuff where every time they come we end up more broke than we were before they came.”

For lawmakers, taxing tourists may be more popular than facing the systemic revenue issues that plague the state today. The system lets Wyoming residents largely off the hook while the energy industry pays the state’s bills, but leaves the state high-and-dry and when energy hits a downturn.

Regardless, it’s clear that in the tourism industry, at least, business owners believe they won’t any longer be able to rely on the general fund’s largesse to promote the state.