Tourism Development Taxes for Sustainable Growth

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<span>Tourism Development Taxes for Sustainable Growth </span>
Bottom Line:

Tourism development taxes are one form of funding that provide a steady stream of revenue to destination organizations. Stable funding allows organizations to enhance their marketing efforts and boost economic impact. As a result of the funds raised, businesses in the destination can address their most pressing challenges and make strategic investments for the future.

For every destination organization, stable funding is critical to increase promotional efforts and balance the needs of various stakeholders within the community. Traditionally, transient occupancy taxes are the main source of revenue for destination organizations looking to fund their tourism marketing efforts. However, occupancy taxes should not be the sole revenue source. Destination organizations should seek innovative funding sources to solve the most pressing challenges that extend well beyond marketing efforts.  

Destination organizations must equip themselves with the tools needed to increase their visibility, attract more events into the community, and accomplish goals that help the local community thrive. Organizations are tasked with keeping attention to their communities’ brand at the world stage. To maintain this competitive in this landscape, destination organizations must continue to diversify and advocate for alternative funding sources to continue brand investment. One such funding source being explored by many destination organizations is regulated Tourism Development Taxes in addition to a growing list of revenue sources including public-private partnerships, reserves and resiliency funding, and risk mitigation. 

In the United States, city councils have approved increased tourism development tax funding, and the list is growing. Most recently, a tourism tax increase was approved by Savannah's city council in May, with the full impact expected in fiscal year 2024. Earlier this summer, Orange County Mayor Jerry L Demings formed a tourist development task force to discuss community investments that should be considered in the future that meet the guidelines of the Florida Statutes. Aside from beach nourishment programs on Ameila Island and tree planting programs in Saint Luis Obispo, tourism tax funding also supports California's top destination organization Visit California by providing stable funding for a variety of projects aimed at increasing resiliency. Moreover, this revenue stream helps increase revenues for small businesses, tackles pressing challenges, including affordable housing, and strengthens a destination organization’s positioning to become a year-round destination. 

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Visit Savannah

In May 2023, the Savanah city council approved a hotel-motel tax increase from 6% to 8% with its full impacts, which became effective September 1, 2023. The projected collections of the new tax rate are expected to come in at $45 million, an increase of $15 million from the 2023 fiscal year budget. Due to the increase in next year's fiscal budget, additional funds will be allocated to Visit Savanah and the Savannah Convention Center for additional tourism product development. The list of projects includes the Savannah riverfront development, the historic Waterworks Building providing connectivity to the westside neighborhoods, and museum development. Across the major projects expected to phase in over a five-year horizon, there is $6 million from hotel-motel revenues allocated and an additional 30,000 for other projects.  

Furthermore, these initiatives aim to improve the visitor experience, improve the resident quality of life, and expand the tourism destinations product offerings. The new tax agreement changes the existing formula to allow 37.5% go towards the City of Savanah general fund, 33.8% to Visit Savanah, and 14% towards the Savanah Convention Center with the remaining 14% allocated for tourism product development. The new tax agreement received full support from the hotel community allowing the measure to pass with an expected boost of economic activity starting in 2025. Tide-To-Town is an example of a project in which the tourism development tax increase brings the vision for additional hiking and biking trails to life.  

Visit Sarasota

Visit Sarasota, a destination organization responsible for generating an estimated US $2 billion dollars in economic impact, enhances the quality of place for its residents in the county. With an annual budget of US $8 million, they can use private sector and tourism development tax funds to promote and market the destination to attract visitors. Recently, they implemented a six percent tourist development tax on lodging stays under a six-month duration. The destination organization makes a distinction to this collected tax in that it is paid by the visitor and not incurred by the resident. The full breakdown of the tax collection is as follows; 30% is spent on marketing the destination, 24% is spent on beach nourishment projects, and the remaining half is split between funds for a sports stadium, an aquatic nature center, beach maintenance, and art programs that are drivers of tourism. Sarasota also strives to be an advocate for responsible tourism in helping to educate visitors on the importance of keeping the beaches clean, developing preservation projects, and using alternative forms of transportation. A recent article on responsible tourism posted by Visit Sarasota, Outside Pursuits for the Mindful Traveler, educates travelers on ways to become more environmentally engaged through the conservation foundation of the Gulf Coast, bird and wildlife viewing opportunities, and wildlife sanctuaries that promote conservation. 

The following graphic illustrates the power of Tourism Development Tax: 

Further, the tourism development tax has helped enhance their 2024 business plan with the aim of fostering a thriving industry year-round. The organization’s business plan focuses on attracting individuals and groups that increase visitor spending, keep businesses thriving, and provide employment opportunities for residents. 

In summary, organizations have begun to implement tourist development taxes in their destinations, providing additional funding for critical projects. These projects expand the scope of a destination organization beyond typical marketing and promotion, allowing them to focus on environmental conservation, affordable housing, workforce development, and enhanced quality of place for their residents. These funds support the development of tourism master plans, sustainability projects, and retaining talent through academic partnerships. As more organizations adopt these approaches, they pave the way for robust and adaptable destination strategies. 

About the Author

Stephanie Auslander

Advocacy and Data Coordinator
Destinations International

Stephanie is a recent graduate of Johnson & Wales University with a Master’s Degree in Global Tourism and Sustainable Economic Development. Previously, she worked as an Intern with Solimar International assisting Destination Marketing Organizations in formulating Tourism Development strategies for the Samtskhe–Javakheti region in Republic Of Georgia and the Sisian region of Armenia. Additionally, she is the author of a Tourism Research Proposal detailing ways in which Destinations can promote the concept of Sustainability to its consumers for a lasting positive impact. With a background in Tourism Development she is confident in her ability to help Destinations innovate into the future.

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