Georgia hotel industry reels after passing of $5 nightly fee

AAHOA Lodging Business
June 25, 2015

If you ask hotel owner Kapil Patel what he thinks of Georgia’s new $5-per-night fee for hotels and motels, he does not hold back.

“It’s kind of ridiculous,” said the Asian American Hotel Owners Association’s regional director for North Georgia. “All the members in Georgia are very upset about this.”

The $5 charge was passed in March as part of Georgia House Bill 170, which lawmakers designed to raise nearly $1 billion for the state’s highway bill. Gov. Nathan Deal signed the bill on May 4, and it goes into effect July 1.

Georgia plans to raise $200 million from the hotel charge.

The hotel occupancy tax, which charges guests an extra $5 per night no matter what the rate of the hotel room, caught AAHOA and other lodging associations off guard. Lawmakers did not consult AAHOA or the Georgia Hotel & Lodging Association prior to passing the fee, Patel said.

“The process for creating a new $200 million tax should always involve proper debate and consideration,” AAHOA President and CEO Chip Rogers, former Georgia Senate majority leader and Republican majority whip, said by email.

“Unfortunately, this new tax was created in the late night with no opportunity for citizen or industry input. Even worse, it was introduced and passed within a three-hour time frame, eliminating the possibility of economic impact studies on such a drastic tax increase. The result of this haste to raise taxes is a poorly constructed tax that will damage one of Georgia’s most important industries – tourism.”

Though the fee takes effect July 1, the hotel industry wants to open dialogue to change the fee in the future to either a percentage-based charge or a $2 flat fee similar to Tennessee’s, Kapil said. Right now, AAHOA is working with its hospitality partners to lobby and educate, meeting with representatives and senators to teach them about the effects of the $5 fee.

“We’re hoping that we can get enough education in front of the governing body that makes these decisions, whether it be the governor or the congressmen of the capitol, to consider changing from a flat to a percentage,” Atul Patel, president and CEO of Panorama Hotels, said. “In doing so, it would ease up the impact on our guests.”

Kapil said AAHOA wants to have a plan when lawmakers meet in January. In the next six months, lawmakers will know how much money they collected from the $5 fee – and perhaps will brainstorm some alternate ways to fund Georgia’s infrastructure.

“If this happened in Georgia, it’ll happen in any state,” he said. “If we don’t make any noise and let it go by, it will happen in other states as well.”

Panorama Hotels owns five Georgia hotels in in Locust Grove, Jonesboro and Conley. Atul calls the hotel fee preposterous.

“We already have a pretty high tax in our local markets because over the last two years, we have all received increases in occupancy tax to the tune of 3 percent,” Atul said.

Kapil said economy and midscale hotels will be the most affected segments. Economy is a weekly rate, so guests would pay an extra $35 per week. And with midscale, a $50 room comes to a lot more after a $5 fee and other taxes. Atul points to the high percentage a $5 fee has for hotels that are under $100 a night.

In Henry County, he has one hotel with a $30 ADR and another with a $74 ADR.

“The impact on the $74 hotel is less on the consumer than the $30 ADR hotel,” he said.

All the fees and taxes add up for guests. Atul said his company spoke with guests at the $30 ADR hotel, which already raised its rate by about $3 in spring, and let them know to start budgeting for an extra $5 per night.

“That’s trying enough. We don’t go up much – maybe $3. However, if you add the $5 on top of that, they said they probably won’t be able to come to the hotel as much. We’re going to see an impact in the lower-price hotels and the mid-tier hotels,” Atul said. “At the end of the day, the impact is not on me. The impact is on the guests.”

And perhaps on tourism in Georgia. PKF Hospitality Research conducted a study of price sensitivity in hotel demand in Georgia’s two largest lodging markets, Atlanta and Savannah.

“History reveals that consumers do react negatively to an increase in price (particularly when the price increase is not accompanied by an enhancement to the product received) and some level of demand is likely to be lost,” PKF President R. Mark Woodworth wrote.

“This lost demand brings with it a reduction in other spending (food, beverage, retail, tourist attractions, car rentals, etc.) as well as forgone general sales and use taxes and hotel/motel tax receipts (which in aggregate can range from 14 to 16 percent of room revenues).”

Rep. Jay Roberts, R-Ocilla, was the primary author of the transportation bill that includes the hotel fee; on May 15, Roberts began working for the Georgia Department of Transportation as planning director.

Reps. Stacey Abrams, D-Atlanta, and John Carson, R-Marietta, explained their support of the occupancy tax.

“Transportation is a critical and vital part of Georgia’s economy, as are our hotels and motels,” Abrams said. “I am committed to ensuring that we meet our financial obligations for fixing our infrastructure without over-burdening those who serve Georgia and its visitors.”

Carson said after the bill’s passing, he has met with hotel operators, industry advocates, members of the convention and tourism industry, and Rogers of AAHOA.

“I already have a few meetings scheduled for the summer about why this isn’t good for the Georgia tourism industry,” Carson said in a phone interview.

He said by email that HB 170 was “a necessary measure to address our state’s crumbling roads, bridges and other infrastructure.”

“Once the final bill came out of committee, it was a ‘package-deal,’ requiring an up or down vote,” Carson said. “I voted in favor of it, but I don’t believe the $5 statewide hotel fee is the best way to generate revenue for transportation. This fixed amount is unfair to businesses in the lower-end market segment and will likely cause some hospitality business, including large conventions, to go to other states.”

That effect will be magnified for hotels in cities that border other states, such as Alabama and Tennessee, where there is only a $2 nightly hotel fee, Kapil said.

“It’s going to affect very harshly the whole tourism industry,” he said.

Atul, who has hotels in other states, worries over the effect of the $5 fee in Georgia.

“In Georgia, over the last five years, the economic impact has been tremendous. If you talk to the industry experts, they will tell you we were on an uptick at the end of 2012 and 2013,” he said. “Georgia, however, was not, due to its banking issues, due to its overabundance of hotels supply. The impact on the economy was greater in Georgia than I felt in other states.”