As an economic engine for the country, Texas attracts not only businesses and migrants, but also visitors from everywhere.
In 2016, Texas welcomed 266 million visitors who generated more than $69 billion in direct travel spending. Many visitors come to enjoy the state’s pristine landscapes, historical landmarks, delicious food and vibrant music scene.
Visitors also benefit from Texas’ lower cost of living. For example, it will cost you about $7 plus tip to try El Paso’s H&H Car Wash and Coffee Shop’s cheese enchilada meal. An affordable, generous meal is a plus when you’re traveling and have additional costs that you wouldn’t normally face at home, such as a hotel room or rental car.
However, Texas could be even more welcoming by not needlessly taxing hotel occupants. With a 17.5 percent hotel occupancy tax, El Paso has the state’s highest rate and one of the highest in the country. A visitor staying in an average priced hotel room in El Paso could afford the cheese enchilada meal, plus pancakes, plus coffee with the amount he pays in hotel occupancy tax on his room per night.
The hotel occupancy tax (is levied on occupied hotel rooms and other paid accommodations (including rooms rented through home sharing companies). The state collects six percent per room, to which additional local taxes can be added. Depending on where you stay, your room will be taxed between 6 percent and 17.5 percent.
Revenues from the state hotel occupancy tax go mostly to fill the state’s coffers, with a small portion used to promote Texas. Local hotel occupancy tax revenues must be used to “directly enhance and promote tourism and the convention and hotel industry.” The rationale is that this money is used to attract tourists who pay for attractions they enjoy when visiting.
The average daily rate of a hotel room in El Paso in 2016 was $76.81, which means visitors had to pay $76.81 plus $13.44. Three nights would result in $230.43 in hotel room plus $40.33 in hotel occupancy tax. That’s a lot of enchiladas!
Supporters of the tax will tell you this is a great deal for Texans. It helps fund attractions that lure visitors, which generates economic growth and tax revenues without Texans being taxed a dime. Unfortunately, there is no such thing as free money (or free enchiladas).
First, Texans represent a large share of visitors, which means Texans visiting another area of their state can end up paying the hotel occupancy tax, not just visitors from elsewhere.
Second, this money could be spent in the local economy instead of going to government. Visitors could enjoy more enchiladas, additional attractions, or stay longer.
Finally, government simply picks winners and losers when it helps one industry without accounting for the cost it can have on others.
The successful Texas model was built on lower taxes and fewer regulations to empower Texans to spend their hard-earned money as they see fit. If Texas eliminated the local HOT, the state could attract more visitors, who could spend more in the local economy, giving Texas a real competitive advantage in terms of growth and jobs over other states.