Memphis Lets Hotels Add A 5% Tourism Tax — Then Spend The Money On Themselves

Hotel fees have gotten ridiculous. We’ve seen resort fees that paid for the bathroom mirror, television and in-room coffee maker, that included the right to photograph the view, and another that included use of the desk in your room.

We’ve seen hotels get really creative, like adding a 4% fee to cover lightbulbs in your room, a 7.5% surcharge to pay the hotel’s property taxes, and a fee when you redem your points to cover the hotel’s tax debt.

Jonathan W. flags one for me that I hadn’t ever seen before, though: the Memphis TDZ Surcharge. This one is actually a fee imposed by the local government that the hotel gets to keep! Only some hotels have it, because only some have been authorized. Here are the ones I found:

• Memphis Riverline Hotel (former Sheraton Memphis Downtown)
  
• The Peabody Hotel
  
• One Beale / Hyatt Centric and Hyatt Caption
  
• Graceland / Guest House at Graceland

They are adding a 5% surcharge to hotel sales (rooms, and in some cases food and beverage) and commit to using that revenue to fund hotel renovation, expansion, preservation, or redevelopment.

At the former Sheraton, the owner asked the city to impose a 5% Tourism Surcharge on all goods and services at location for 30 years. They projected $93 million – $127 million in revenue. The city creates a legally authorized surcharge they tack on to room rates to cover their own expenses.

A municipality can impose a ‘Tourism Development Zone’ tax under Tennessee law on up to 5% on sales. For downtown Memphis hotels, it has to be a full service hotel with at least 250 rooms and retail, commercial, and parking space.

• The hotel collects the fee, files monthly returns with the city treasurer and hands the money to the city
  
• The city can keep up to 1% of the funds for administrative costs
  
• Then the rest of the money gets spent on the hotel’s renovatin, expansion or related debt service.

Economically, it’s just a higher room rate, albeit one that’s more hidden from consumers when they’re comparison shopping on many sites. It is literally a tax, but the hotel spends it on its own projects.

Fees and assessments for local tourism authorities aren’t uncommon. What’s truly unique here is that the tax money literally funds the same hotel.

This lets a hotel advertise a lower room rate. It gives hotels political cover to impose the surcharge since “Memphis TDZ Surcharge” looks official, required, and something a guest assumes would hit them regardless of where they stayed (which isn’t true). It’s harder to negotiate away in corporate and event contracts. It will generally avoid commission and franchise charges. In other words, it’s about misleading both guests and hotel chains alike.