When hotels charge resort fees the city loses tax revenue and consumers lose the ability to comparison shop
New York City has seen an incredible explosion in hotels charging resort fees in 2017. In May 2016, fifteen hotels in the city charged resort fees. Today, in July 2017, a whopping 42 hotels in New York City charge scam hotel resort fees. This increase has drastic implications for the fair collection of taxes from New York City hotels.
How does it work? The 42 hotels in New York City with resort fees advertise one low price, say $100. In reality, to get the key to his room, a hotel guest will be forced to pay an additional, say $35 per day that the hotel considers a resort fee. This allows the hotel to lie about its advertised rate — they can say it is $100 instead of $135 — and it also allows the hotel to cheat the city of New York out of essential taxes. The advertised room rate of $100 is subject to the hotel occupancy tax of 14.75 percent. The $35 second room rate/resort fee is only subject to the NYC sales tax of 8.875 percent.
How much money is the city of New York losing per day on this hotel scam? $24,181.91 per day. That’s $169,273.37 per week. $677,093.48 per month. In total, New York City loses $8,826,397.21 in tax revenue per year because of the hotel resort fee scam.
Why is the city losing more than 8 million dollars a year in tax revenue because of this hotel scam? Because hotels want to be able to lie using only their advertised room rate to lure in customers. When a few bad hotels start this atrocious practice, others quickly join so that their room rates are close to their competition. With 42 hotels in New York City now engaged in this questionable practice, there are massive consequences to tourism and taxes in New York.
Tourists are confused by hotel pricing and are turning instead to home shares like Airbnbs. Many local governments have taken up regulating Airbnb as they should, but to do so and not address scam hotel resort fees that drive tourists to home shares is hypocritical.
Resort fees also allow hotels to cheat the city of essential tax revenue that could be used on affordable housing initiatives. Any city considering regulating home shares like Airbnb needs to address the hotel resort fee issue in the same bill. To ensure fair is fair, and that the city gets the units and taxes deserved for affordable housing, both home shares and hotels should be taxed, advertised and regulated similarly.
Hotel resort fees federally fall under the purview of the Federal Trade Commission (FTC). Seeing as President Trump earns $66,168 per day on hotel resort fees from three of his hotel properties, it is highly unlikely there will be any federal action on this issue. In good news, 46 state attorney generals have joined together to investigate hotel resort fees. This is multi-state litigation that could take years. In the meantime, cities like New York are losing tax revenue every single day. Local governments need to take action now to end this scam and make sure they are getting all the tax revenue they deserve to support essential city programs.
How does this scam work exactly? In short, hotel resort fees allow a hotel to break up its room rate into two parts. One is advertised, one is not. The advertised rate is subject to the hotel occupancy tax of 14.75 percent. The second hotel rate that the hotel calls a resort fee is only subject to the NYC sales tax of 8.875 percent. The city is losing 5.875 percent of taxable revenue on every second hotel rate/resort fee in the city. In a city the size of New York, this quickly adds up to over 8 million lost dollars a year.
For a more detailed look at how hotel resort fees cheat taxes in New York City, note that there are five components to how a New York City hotel room’s advertised rate must be taxed to reach 14.75 percent.
1) NYC Hotel Room Occupancy Tax Rate – $2 per room + 5.875 percent
2) New York State Sales Tax for Hotels – 4 percent
3) New York City Sales Tax for Hotels — 4.5 percent
4) MCTD (Metropolitan Commuter Transportation District) sales & use tax – 0.375 percent
5) New York State Hotel Unit Fee (aka Javits Center fee) — $1.50 per unit per day
All combined, hotel rates in New York City should be taxed at 14.75 percent per day plus $3.50. That is clearly the law and that is how hotels have been taxed for quite a while in NYC. With creative new hidden second room rates, a.k.a. resort fees, hotels are now able to split their price and only pay the hotel occupancy tax on the advertised rate. The second half of the room rate, the hotel says, is not subject to the hotel occupancy tax since they claim it is providing a service (though, as we clearly know, it is not). So, what is the second half of the hotel’s room rate taxed at? The New York City sales tax of 8.875 percent. How?
1) New York State Sales Tax for Hotels – 4 percent
2) New York City Sales Tax for Hotels — 4.5 percent
3) MCTD (Metropolitan Commuter Transportation District) sales & use tax – 0.375 percent
The $3.50 – the Javits Center tax fee of $1.50 per room and the hotel occupancy base of $2 per room – is moot, as that is being charged once per room. By advertising one rate but charging yet a second room rate plus resort fee when a guest gets to the hotel, 42 NYC hotels that charge scam hotel resort fees also eliminate 5.875 percent of taxes off of the split cost of every room.
For example, The Hudson Hotel in Manhattan has a room on July 30, 2017, advertised for $120 per night. When a guest gets to the hotel, she will learn the hotel also has a facility fee/resort fee of $29.95 plus tax. The hotel’s total advertised room rate should be $149.95, but they are able to reduce their advertised cost by 20 percent by charging a scam resort fee. That’s an immoral and deceptive consumer practice to begin with, yet the hotel is also clearly working to cheat New York City out of taxes.
If guests click for further information before booking, they see that the $120 is subject to the hotel occupancy taxes of 14.75 percent. There is also a surprise un-advertised resort fee whose pre-tax value is $29.95. The facility fee/resort fee/second room rate is only taxed at 8.75 percent, and the city is collecting $2.66 off this $29.95. In reality, the 29.95 should be part of the advertised room rate ($120 + $29.95, so total taxed advertised room rate should be $149.95).
The Hudson Hotel is cheating the city of New York out of $1.76 on each hotel room booked. The Hudson Hotel has 1,250 rooms. The city of New York is losing $2,200 from the Hudson Hotel per day. That is $15,400 per week, $61,600 per month and $803,000 per year. From just this one hotel the city is losing essential tax revenue due to scam hotel resort fees.
The Hudson Hotel has long had the resort fee scam in Manhattan. However, the resort fee scam has spread far beyond them to over 16,000 rooms in the city.
Other hotels which want to look like their overnight costs are just as affordable are beginning to advertise dishonest room rates without mandatory fees. That’s basic false advertising and harms not only consumers with deceptive advertising but slices NYC tax collections as well.