Our city’s economic prosperity has been bolstered for many years by our strong convention and visitor business. We need to do what we can as a city to propel this important driver of our economy. Thousands of visitors each year patronize our restaurants, use our hotels, and shop in our stores.
More recently, our city has seen great challenges financially and—just like in business—in government, fiscal challenges warrant creative and aggressive solutions. Earlier this summer, the city made the decision to direct property taxes for the first time to support the operations of the Indianapolis Convention and Visitors Association. While supporting the ICVA is essential, sources of revenue other than property taxes should be seriously explored, as property taxes are more appropriate for other essential city services and the source of property taxes in the case at hand may not be sustainable for the long term.
Other cities have found creative and aggressive ways to augment funding for their convention and visitor business. Recently, the city of New York sought to close a tax loophole that online travel agencies enjoy at the expense of that city as well as ours.
This loophole comes about when online travel agencies collect hotel taxes from customers based on the room rate quoted to the customer, even when the online travel agency actually negotiates a lower rate with the hotel. While the customer would pay the full tax based on the published room rate, the online agency would pay the hotelier the tax based on the actual room rate negotiated (which is lower) and then retain the remainder of the tax paid by the customer.
In New York City, to address this issue, the city enacted a law that requires online travel agencies to pay the tax on the amount they actually collect and forces them to provide a breakdown of hotel taxes on the bill to customers, therefore providing greater transparency. New York City estimates that this law generated $14 million in additional hotel tax revenue for fiscal 2011. When online travel agencies sought to challenge this law, just last month, the New York State Supreme Court dismissed the lawsuit, resulting in a victory for the city.
Other cities have also recognized this issue and taken action. Recently, a Superior Court in Atlanta ruled that online agencies were cheating the city out of hotel taxes and ruled that the taxes be calculated based on the total room rate paid by the customer rather than what the online agency paid the hotel. Once again, this is estimated to result in millions of dollars the city would not otherwise collect.
Indianapolis should seriously consider a similar move as we consider how best to sustain our important convention and visitor business. As the city has struggled to find revenue sources to sustain our convention and business operations, and as the city has cut important funding for arts and other amenities that have been supported by similar funding, the city needs to explore creative solutions as other cities have done.•
Kennedy is an attorney and former Indianapolis deputy mayor for economic development.