Which Use Ultimately Yields More In Local Tax Revenue? Community Marketing or “Build It And They Will Come?

The logic was clear when the “room occupancy and tourism development tax” was pioneered as a special tax by the NC General Assembly in 1982 specifically to self-fund local community destination visitor promotion as a pump to in turn fuel 13 times that amount in sales tax revenues alone to help fund local governments.

But from the minute the ink dried on the Governor’s signature, local officials have tried to divert it to other uses. Some egged on by individuals or organizations not original enough to propose a self-funded tax of their own or just plan envious. Others were hoodwinked by businesses that often didn’t collect or generate local sales taxes themselves but all too willing to push officials to divert revenues from this one as a subsidy for pet projects or to fund the public portion of a so-called partnership.

Actually many officials didn’t need encouragement to try to raid or end-run the fundamental purpose of the special tourism development tax. Some resent the strings attached to special taxes or refuse to accept how unfair it is to deploy them the same way as general tax revenues.

The concept of using a tax to generate an increase in overall tax revenues is lost on those who believe that the only way tax revenues can be generated or increased is by politically increasing the tax rate or levying a new tax.

Many don’t grasp or have flip flopped the law of supply and demand, failing to understand that only by generating “demand” as in “more visitors” can existing or new facilities be justified or made sustainable over the long-term.

Others are just too far left-brained to grasp the more right-brain notions of managing perceptions or overcoming objections to get on the list for consideration by visitors falling under the spell of “build it and they will come” so often used as a developer mantra…but as the New York Times revealed, “not for long.”

Below is a tale of three communities, taking three different approaches to deployment of the special tourism development tax:

• The first uses 100% of the room occupancy and tourism development tax as intended. What it reaps in visitor generated tax revenue per 1,000 residents is used as the benchmark.
  
  
• The second is Durham which expends half the State House Finance guideline for what should be designated for marketing alone and as a result reaps 36% less than the benchmark.
  
  
• The third is a community that spends lavishly on brick and mortar facilities and less on marketing and reaps 50% less than the benchmark.
  

This is only one of many sources of evidence that communities with the discipline to follow the State’s guidelines are the winners. Those who siphon the special tax off for other purposes do so at a tremendous, hidden cost to their constituents and communities. It is also clear that “build it and they will come” ultimately results in far less overall revenue.

Politicians like the late Senator Swain and former Representative George Miller were farsighted when they pioneered the room occupancy and tourism development tax and established guidelines for its use. Present-day elected officials with that same grasp should be celebrated. Those who don’t need to be motivated to come up with similar win/win self-funding solutions.