Wednesday, March 08, 2006


Tourist Tax Fallacy

I need some help backing this up with data, but here's what I think about "tourist taxes" like the car rental tax and the prepared food and beverage tax:

1) they are mostly paid by non-tourists
2) people actually buy into the arguments that say otherwise (making it a fallacy)
3) local politicians feed on this ignorance

What is the best way to get evidence on the burden of the "tourist tax"? My dad operates a car rental agency and I have seen the people who rent the cars. Most of them are locals, but they still have to pay the combined 11% tax on rental cars.

I have to pay the prepared food and beverage tax every time I go out for lunch, even though I'm not a visitor. The fallacy can be summed up as this: Nearly all tourists rent a car or dine out. Therefore, a tax on prepared food and rental cars will be borne by tourists.

The fallacy could be corrected by admitting that: While nearly all tourists rent a car or dine out, most of the people who do so are not tourists. It follows immmediately that the tax burden in this case is not borne exclusively, or even largely, by tourists.

How can I test whether or not my intuition and anecdotal evidence are right?

A recent article from Auto Rental Magazine reports that the "home market" has, in recent years, eclipsed the airport market. The article states that at least $9B of the $17B industry occurs in the "home market."

The article adds, "If the local market makes up the majority of the total market, then the general public can’t assume that rental taxes will, by default, fall to the responsibility of tourists."

Right on. Couldn't have said it better myself.
Good stuff. But I think they're breaking different locations into "airport" or "local" without truly distinguishing how much business is "tourist" and "non-tourist."

For example, Roy has rented cars for local use from the airport, and some tourists have rented cars from my dad (a local establishment).

But that fuzzy distinction between "airport" and "local" rental only begs the question: Why are local agencies being taxed in the name of tourism and not just airport agencies?

I am sure there are Public Finance or Tax journals has done some work on the excise taxes. You should so a quick search on NCSU library site.

What about the hotel excise taxes and the airport entrants fees and taxes?

You could also take a look the specifically tourist areas and try and determine the breakdown there and assume it would atleast be less than that (like outerbanks or beaches).

It's a thought
Good points.

Travis, I have to disagree with you at least a little bit. Using Roy as an example misses an important point. When a local business rents a car for tourist use, it's still money coming from a local source.

It seems to me that most tourists renting cars do so at the airport. What would be the point of leaving the airport to go to another car rental location, when there are many options at hand?

So, while it's not broken down the way I'd like it to be, I think it's safe to use airports and local rentals as proxies for local v. tourist revenue.

Chris, I'll leave it to you to find data on hotels; I've no desire to pore over tax journals.
I think it is generally true to assume on the airports thing, except there are many rental places that only have offices at the airport.
No, no, no. It might just by chance turn out that the two effects cancel out, but my critique still stands.

Sometimes people rent from my dad's place in Aberdeen (nowhere near the airport) because they're staying with their friends, playing golf in Pinehurst, etc. (tourists). In general, they get picked up from RDU and rent cars where they're staying.

And sometimes local people rent from airports, like Roy did. I just think it would be bad research to assume those effects cancel out. But I have to admit it's a start.
I agree that they would not cancel out, but unless you can devise something else empirically, if would be a fair starting place in an analysis.
Chris, check out the survey attached to this article:

I know it's not a random sample, but I like it.
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