Chatham Chamber, FinCom Oppose
Increase In Room, Meals Taxes 

by Tim Wood

            CHATHAM --- In a 10-page report released last week, the chamber of commerce detailed the case for the town not increasing in the room and meals taxes.

            Both taxes, wrote chamber Executive Director Lisa Franz, unfairly single out specific industries “and would have significant impact on these important industries in our town. The tax will have a direct effect on rooms sold and visitor spending in Chatham restaurants and retail businesses.” 

           “A 1-2 percent increase in the room tax would cost jobs, wages, benefits and sales,” Franz wrote. The chamber, the report concludes, “strongly opposes this tax and would recommend not taking any further steps in this regard.”

            On the surface, it seems like a simple thing to pass the increase on to out-of-town tourists, Franz said.  “It’s not that simple,” she said, adding that the report was designed to make that case for the larger economic impact of an increase.

            Selectmen are considering whether to place increases in the local option taxes on the May annual town meeting warrant.  Citing the need to generate new revenue, Town Manager William Hinchey is recommending the room tax be increase by 1 percent this year and another 1 percent the following year.  A 1 percent increase would bring in an additional $258,750.

            Currently, the room tax is 9.7 percent; 5 percent goes to the state and 4 percent returns to town coffers.  Last year, the state allowed local towns, with town meeting approval, to increase the tax by up to 2 percent, with all of the increase retained locally.  Last year, the town’s share of the room tax brought in $1,202,624.

            The meals tax is current 6.25 percent.  Towns can add a .75 percent local option to the tax if approved by town meeting.  Hinchey said the increase could net the town an additional $200,000.

            In the report, Franz cited equity as a major concern.  “The distribution of the tax burden and the benefits of public services should be equitable.  A local hotel/motel local option tax places the burden of revenue generation on one specific industry in Chatham: lodging.”

            There are 22 lodging businesses in town, mostly small and owner-operated, with a total of 627 guest rooms, according to the report.  These businesses “would be asked to carry the burden of this additional tax that would in turn be used for the benefit of the entire town population.”

            Increasing the tax here could give other Cape towns that don’t adopt the increase, and other resort areas with lower room taxes, a competitive advantage and draw away tourists, which in turn could hurt local retail and restaurant businesses, the report states.  People might stay fewer nights, establishments  may purchase fewer supplies and services and so on.  “A ripple effect follows through the town, and the negative impact reaches all sectors of the economy.”

            The chamber also criticizes the town for only returning $45,000, or 4 percent, of room tax revenue to the agency.  “Earmarked use of room taxes for non-travel purposes act as a travel deterrent by increasing a guest’s costs without attracting more guests,” the report states.

            The lodging industry generates more than $27 million in wages annually.  The food service industry generates more than $8 million.  Again, the chamber argues that increasing the meals tax would place the burden of revenue generation on one industry, and while it might not discourage people from dining out --- it would only add about 37 cents to a $50 meal bill --- it could have a negative impact on servers in terms of tips and wages.

            Last Thursday, the chamber got support for its position from the finance committee, which voted to oppose increases in either tax.

            Fincom member Blake Foster warned of “unintended consequences” of the increases.  “If you tax this activity,” he said of the room tax, “ you may hurt businesses that can’t pass this on to customers.”  To generate the same amount of revenue as the room tax, the tax rate would have to be increased by nine cents, raising the annual average tax bill about $54, he said.

            Norma Avellar said she initially supported the increases, seeing it as a way to raise additional revenue that was painless for local residents.  After studying the issue, however, she changed her mind.  “I think that a very small portion of our business community is being asked to support everybody, and that’s not fair,” she said. “I think we should all pay for this increase.”

            James Meyers, president of the Chatham Lodging Association and owner of the Captain’s Inn, said revenue and occupancy have been down since 2008 and have yet to recover.  Most local inns haven’t raised rates since then; in fact, most are offering deals to lure customers.

            “Right now the lodging industry is distressed,” he said.  “This is not the right time to give the lodging industry in town a competitive disadvantage.”

            Chatham Bars Inn General Manager Paul Zuest said the increase could cause convention and meeting planners to take their business elsewhere.  They go where they can get the best price, he said, noting that some spent as much as $100,000 on a single event.  Two percent of that “makes a huge impact” on a planner’s budget, he said.

            “That’s a huge amount of money that could leave the town of Chatham,” said Zuest.

            But finance committee member Coleman Yeaw said other resort areas have higher room taxes.  In San Francisco, the tax is 15 percent; in Virginia Beach, 13 percent; in Newport, R.I., 13 percent, he said.

            “Eleven percent isn’t out of line with other resort communities,” Yeaw said.

            Many of those communities contribute more of the revenue for promotion, said Wayside Inn and Bradford Inn owner David Oppenheim.  “All those monies don’t go to the general fund,” he said.

            Fincom members expressed support for expanding the existing room tax to include short-term house and cottage rentals, a proposal that has been brought up on Beacon Hill for the past five years, said Hinchey, but never approved.

            Along with voting not to support either increase, the finance committee voted to recommend that selectmen not place the proposals on the town meeting warrant.

            Franz said later she was pleased with the finance committee vote.  “I thought they did their homework,” she said.  The chamber report has been sent to selectmen, who are slated to discuss whether to place increases in the room and meals tax on the warrant at their March 2 meeting.

2/25/10