Tourism Development Taxes for Sustainable Growth

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

TIDs, or tourist 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. Destination 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 a regulated Tourism Development Taxes through a tourism improvement district.

At the time of this writing, a total of 18 U.S. states and 200 communities have approved tourism improvement districts (TID) funding so far, and the list is growing. Most recently, the Portland city council voted to create a tourism development district with the purpose of funding marketing efforts for the destination. The vote will allow lodging with more than 40 beds to charge an additional 1.5% tax to help fund the Visit Portland office. 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, TID funding also supports California's top destination organization Visit California by providing stable funding for a variety of projects aimed at increasing resiliency. This additional source of funding 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 Portland, Maine

The Portland city council voted last week to create a tourism development district that would fund a new tourism marketing campaign for the city. As an organization that was primarily funded through membership dues, the creation of this district will allocate a 1.5 % lodging tax to help fund the Visit Portland office. With this new funding source, the destination organization can double its current budget size of US $1 million, putting it on a more equal footing with destinations of a similar market size. This funding will help tackle pressing challenges faced by residents including affordable housing, workforce development, and rising costs due to inflation. Further, the 5-4 vote amended by the council would ensure that 10% of its funding would go towards attracting visitors of diverse backgrounds to the destination, aligning with their inclusion goals. Through the development tax, marketing promotion and destination development initiatives will be funded, helping propel small businesses forward and raise awareness of the destination during the winter months. With a tourism development district, they will be able to position themselves as a year-round destination that is more equitable and sustainable, building towards a prosperous future. 

“These funds will significantly impact our ability to market our destination.” (Lynn Tillotson, CEO of Visit Portland) 

There are several ways in which Visit Portland plans to allocate these funds towards key areas of workforce development, expanding marketing efforts to shoulder seasons, highlighting the diversity of the community, building resilience that can withstand an economic downturn, and ensuring that tourism funds help enhance residents’ quality of life. Regarding workforce development, the tourism development tax will assist the organization in increasing its engagement with local universities to retain talent and provide them with the steps to obtain a successful hospitality career. In addition, the organization can form partnerships with organizations including the New Mainer Staffing and the Greater Portland Immigrant Welcome Center to establish opportunities for the immigrant community. Moreover, an increase in these funds will allow the organization to establish a healthy crisis management reserve that will allow the DMO to promptly respond to disasters while minimizing the impact on the tourism industry. The management plan will allow the destination to develop timely information and guidelines that respond to identified areas of concern.  

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 $6 million, they can use private sector and tourism development tax funds to promote and market the destination to attract visitors. Recently, they began implementing a five 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 2023 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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