Impact of hotel room sales tax on community

During the “Public Comment” opportunity during the Lancaster County Commissioners weekly meeting, NewsLanc publisher Robert Field volunteered the following:

I would like to comment on the recent request by Kevin Molloy, Executive Director of the Lancaster County Convention Center Authority, that there be an increase in the hotel room sales tax to enable the center to remain solvent and the Tourist Bureau to continue to be funded.

A frequent assertion is that the hotel room sales tax is only at the cost of the visitor, not the hotel or the community.   This is incorrect.

Most business persons would hasten to raise prices by 5% if they felt they would not lose customers.  But they know that there will be a trade off and they do their best to find the optimal balance between price and generating revenue.

A room sales tax is de facto an increase in price to the customer.  To a tourist who came last year to stay for $100, the economic impact is the same whether the hotelier raises the price to $105 or the price remains the same and the county adds a 5% room sales tax.  To the extent the 5% increase is passed along to the guest, hotels are going to lose some customers.  To prevent this occurring, the hotelier absorbs much if not all of the tax by lowering his price to offset the tax.

This is explained in Economics 101 and known as Marshall’s law of the elasticity of demand.   More simply stated, there is no free lunch.

The results have been predictable:  Despite more hotel rooms being introduced to the market place, total county wide revenue from room sales has leveled off and some years actually dropped.  Hoteliers report their earnings are down and find it difficult to invest adequately in modernization and renovations.  We have created a vicious cycle.

Moreover, when less people come to visit, there are fewer customers for restaurants, entertainment venues and other businesses.

The Manor Group does not operate hotels in Lancaster County.  When a hotel room sales tax was enacted elsewhere, our profits actually dropped the full amount of the tax the following year.