Determinants of Hotel/Motel Tax Rates in Local Governments

Abstract

In recent years, numerous local governments, including those in rural areas with limited rental properties, have implemented a hotel/motel tax (HMT) to alleviate financial pressure and fund local initiatives. While some cities have increased HMT rates, others have not. In Georgia, local governments can set their HMT rate up to 8%, yet only 33% of those imposing an HMT opt for the maximum rate, with the remaining 67% selecting rates between 3% and 7%. Notably, the distribution of HMT rates among local governments exhibits greater diversity compared to other taxes, such as sales and excise taxes. This study explores the factors that influence HMT rates by examining revenue and fiscal data, tourism data, socio-economic and demographic data, as well as voting records and patterns. By analyzing county data in Georgia, the study reveals that only a few variables, including the HMT rate of neighboring jurisdictions, the political environment, and the volume of the lodging industry, have a limited impact. These findings carry significant implications for local governments as they endeavor to diversify revenue streams during periods of financial strain.