We want to address the proposed 3 percent hotel tax for Farragut that was approved 4 to 1 on first reading by the Board of Aldermen this week. As an industry of hoteliers, we are all for growing tourism in our great Town, and as experts in the field we know this additional tax burden on our hotels and guests is not the answer.
Farragut hotels are currently situated in a unique setting where the current tax structure allows our nine small hotels to enjoy a distinct advantage over our neighboring hotels in Knoxville. Farragut hotels currently collect a total tax of 14.25 percent, which is 3 percent lower than the City of Knoxville. This is a huge advantage and is, quite frankly, needed in order to compete with newer hotels that are located closer to the main demand generators bringing travel to our area. While you may think travelers don’t look at tax rates, they absolutely do. In today’s environment, it is easier than ever to compare, as websites quote prices in terms of total spend for the guest.
Our well-intentioned Town government wants to help our business. Nonetheless, no one on the Town government has long-term experience in the hospitality industry, or to my knowledge has higher education specifically in the hospitality field. By contrast, our nin hotels have leadership that have either gone to school specifically for Hospitality and Tourism; or, maybe more importantly, have spent their life’s work learning to succeed in one of the most competitive fields. If we, as tourism experts, truly thought this proposed tax would benefit our Town and our businesses, we would be 100 percent behind it. The truth of the matter is, it would have the opposite effect; driving down our occupancies and costing the Town that much more in coveted sales tax base that has allowed the Town to succeed since day one.
The sales tax base in this year’s budget contributes 6.3 million dollars. Beer, wine and mixed drinks combined taxes contribute over 1.1 million. Our nine hotels do a lot to help drive that combined 7.4 million dollars in collections for the Town. When this new tax starts, some of our guests will go stay at other hotels; they will also shop, dine, drink and fill their gas tanks elsewhere resulting in additional lost sales tax base.
The 2019/2020 budget is already set, and the Town is operating in this fiscal year at a surplus of 3.7 million dollars. As a business, our hotels are also operating in their fiscal year within their budgets and after all expenses are paid, a far less amount will be our surplus. We are glad the Town is healthy enough to have a $3.7 million surplus in their budget and even more proud our small, but mighty, group of nine hotels have contributed a lot of money to that number.
Our hope is that you do not kill the golden goose while being overly eager to institute a tax to “help” a group of businesses. If you must institute this tax, we demand to see a strong strategic plan that makes sense. What are you going to do with the additional $450,000 you will receive? Show us how it will boost our hotel occupancies prior to implementation. To force this tax into place before doing so is completely irresponsible and will lead to lower sales tax collections.
There is not a state of emergency currently in the Farragut budget. We all understand the Hall income tax stream goes away this year and the Town is going to lose $454,000 from the budget. This is eerily similar to the amount the new hotel tax could contribute at $450,000.
If this is not simply an effort to replace the Hall income tax stream, but rather a shrewd investment in tourism, then prove it to us. We all know investments in tourism have a great return on investment (ROI) when implemented correctly.
If the Town government is as committed to Tourism as you say you are, then look at the big picture. If money is needed to promote Tourism that will benefit the whole Town, Farragut is currently charging 2.25 percent local sales and use tax but can charge up to 2.75 percent. Why not look at a raise there that would allow all businesses to help rather than single out a small group of nine?
By implementing a .25 percent increase in local sales and use tax, the Town could produce more toward the budget. This small increase would result in far more revenue than the proposed hotel tax to put toward the Town budget and into tourism, if tourism is what the citizens of Farragut want.
At 2.5 percent, Farragut would be on par with the Tennessee average for local sales and use tax. A small increase to the local sales and use tax would spread the burden across many businesses, not just nine. It is also worth noting, none of our hotels rank in the top 10 employers in Farragut. While we are sure the intention is not to single the hotels out, the optics are unfavorable in that light.
We know Farragut was very proud to receive a designation of being the most “Business Friendly” city in Tennessee in 2011. That reputation and designation have been a driving factor in businesses, like our hotels, choosing to operate in Farragut and contributing to healthy reserves the Town has built up over that time.
We would love to see the business-friendly environment continue and potentially receive that designation again. We all love doing business in Farragut and want to see continued success, but singling out nine small businesses, in a field of hundreds, is a short-sighted way to operate.
Town of Farragut hotels: Comfort Inn & Suites, Country Inn & Suites, Clarion Inn & Suites, Fairfield Inn & Suites, Hampton Inn & Suites, Holiday Inn Express & Suites, Quality Inn, Staybridge Suites, Super 8 and Scott Pejsa, McKibbon Hospitality