Room tax increase coming?Tourism commission broaches subject with industry reps
(March 17, 2017) Raising Ocean City’s room tax is apparently on the minds of some Ocean City officials, as they started a long discussion on raising it, but industry members cautioned that doing so could alienate its customer base and resort hotels.
During Monday’s Tourism Commission, Councilwoman Mary Knight sought the opinions of the Hotel-Motel-Restaurant Association and the Ocean City Chamber of Commence on raising the room tax from 4.5 percent to 5 percent by summer 2018.
Wildwood and Myrtle Beach have 13 percent room tax, she said, while Atlantic City has the same tax plus a $5 per night charge and Virginia Beach has a 14 percent tax and a $2 per night charge.
“We feel that it wouldn’t hurt competitively,” Knight said. She added that the city’s staffing levels remain significantly less than they were when the room tax took effect in 2009, while the city’s revenues also declined despite the need to maintain the same levels of service.
It wasn’t until last year that the city’s budget approached what it had been in 2009, when total spending was $80.4 million versus $79.7 million last year.
If the room tax is reconsidered, it would also give city officials a chance to recalibrate how it is spent. Currently, half of the 4.5 percent is designated to tourism marketing. Knight suggested that if the tax is raised, the city could designate some of those funds to special events or other costs.
Budget Manager Jennie Knapp pointed out that if the room tax was increased to 5 percent there would be $1.4 million generated in the first year. Increases for subsequent years should be about what they are now.
“There are other costs that you might not realize assigned to tourism, like the Beach Patrol, keeping the beach clean with the tractor and maintaining the Boardwalk. It’s time to start thinking about replacing the boards,” Knapp said.
From the hotel standpoint, HMRA Executive Director Susan Jones said although Ocean City might have the lowest room tax rates, the resort also has the highest average daily room rate as compared to its competing markets.
The resort’s average daily rate in 2016 was $131.05. The year before, it was $128.11.
“When you add on other tax, it’ll cost more every time you visit, which will push our [average daily rate] even higher,” Jones said.
She added that if room tax is raised, the commission might need to focus on how marketing funds could be used to address the resort hotel industry’s biggest problem: weekday occupancy.
“If we’re [filling them] successfully, the room tax is automatically going to go up,” Jones said. “In two years, there’s 700 new rooms slated to come online. There’s half a million in revenue there, but the hotels are mostly franchises and need to stay open all year. How can we best totally fill rooms?”
Convention center Director Larry Noccolino told the commission that high hotel rates in some instances have led event and convention guests to rent condominiums.
“I’ve been told, ‘Don’t get me business in July; get me business the rest of the year.’ I want business all year, but it’s difficult with the rates we charge,” Noccolino said. “My biggest fear is that we’re going to price out of our market and these events will go to Virginia Beach.”
Councilman John Gehrig agreed that the part of the problem was the high hotel room costs on weekends, but argued that adjustments needed to be made in how the room tax money is spent.
“We don’t need to keep advertising; we need a more targeted approach and fill in holes ... We need to get ideas on how to make [hotel] rates more stable so we’re not at risk of being the most expensive,” he said. “From a town perspective, our job is to create demand. It’s the hotel’s job to service it.”
“The hotels need to understand that is if property taxes go up, the demand for real estate will go down, which mean property taxes must go up. That impacts them directly. So, we’re all partners in this,” Gehrig said.