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RIHA COLUMN: The Danger of Taxing Hospitality

By Dale Venturini, President/CEO, Rhode Island Hospitality Association (RIHA)

Rhode Island’s hospitality industry, perhaps more so than any other, is uniquely positioned to provide stability and growth to the state’s sluggish economy. Presently, hospitality and tourism is one of the few sectors which have experienced growth. Given the proper resources, this crucial area of the state’s economy has the potential to attract new visitors, create additional jobs and bring in more revenue for Rhode Island.

This is possible because hospitality is unique. It’s not like other industries, and that is why is cannot be taxed like most other industries. The danger of taxing hospitality like you would tax other businesses is that you threaten to drive away the very guests who contribute so much financially to Rhode Island’s economic well-being.

However, each year, proposals attempting to cash in on restaurants, hotels, and the other businesses that make our tourism industry so vibrant are put forth. And each year, members of our community wonder why others want to make it more difficult for us to attract visitors who are ready and willing to spend their money here.

While creating new taxes and raising existing ones is a perennial proposal each budget season, I feel a superior option would be to consider how we can spend money to make Rhode Island more appealing to day-trippers, conventioneers, domestic tourists, international travelers and world class events.

Part of what makes hospitality so unique is that it has virtually limitless potential for growth. Simply put, the more visitors we attract to Rhode Island, the more jobs we are able to create and the more revenue we are able to generate in tax recipients. What other industry can say that?

That is why it is a short-sighted fiscal policy to tax hospitality as part of a larger effort to plug a budget deficit. Instead, policymakers should be focused on making our industry as competitive as possible. Consider some of these interesting facts contained in a report about Rhode Island’s tourism industry by IHS Global Insight, an internationally respected economic forecasting company, which demonstrate exactly how valuable each visitor is.

* Every 187 visitors create a new job in Rhode Island.
* If tourism didn’t exist, each household would pay an additional $1,310 in taxes to maintain the current level of state of local tax receipts.
* Each visitor generates about $444 in expenditures. $88 of this goes to Rhode Island businesses that do not directly “touch” that visitor.
* Each visitor creates about $119 in tax receipts. $69 of that typically goes to state and local authorities.
* It only takes 198 visitors to pay for one Rhode Island public school student for one year.
* Each visitor adds about $210 to the Rhode Island Gross State Product.

The hospitality industry understands the financial pressure facing not only Rhode Island, but all 39 cities and towns. Our industry is also under immense pressure. As we fight to keep our costs down, and our prices affordable, the cost of commodities used by our restaurants continues to rise at an exponential rate.

For example, over the last two years, the cost of flour is up 22%; coffee is up 18%; eggs are up 17%; butter is up 13%; and gloves for our employees are up 21%. The price of beef and veal is up 15%, while pork is up 12%. Despite this, menu prices have increased just 1.5%. Hotels and other businesses are also working to remain affordable in light of more expensive operating costs.

As the fourth largest industry in Rhode Island – one uniquely positioned to provide growth and stability to the Rhode Island economy – we must constantly evaluate how we can be as competitive as possible in order to draw additional visitors to our state. Imposing new taxes, now or in the future, will never accomplish this goal.

– March 2012

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