Using Hotel/Motel Tax Numbers for Compensation Doesn't Add Up

Knox County's hotel/motel taxes and its uses have been in the news, lately, so what conclusions can we draw from examining the numbers?

What you discover in looking at three years of data is that there is a decided upward trend, year over year, in the amount of collections. As to why, it's open to interpretation.

I was immediately suspicious in that hotels and motels self-report the amount they owe. There is no third-party entity to check and see if the amount paid is accurate. But the system is not without safeguards.

Big-time corporate hotel managers need to impress the home office with their success in luring customers. They have no incentive to underreport visits. The tax is paid by the lodger. If you try to cheat and underreported totals, it just makes you look bad. If your visits are way out of line with the rest of the local lodging industry it sticks out like a sore thumb. Tourism consultants keep a close eye on visits and business; you can't cheat for long without someone finding out.

County Clerk Foster Arnett and his ace assistant Wendy O'Neal also work closely with local hotels and motels to keep up with what is going on. Any anomalies will be duly noted. Kim Bumpas, interim chief of the Knoxville Tourism and Sports Corp., also notes that if any hotel/motel is delinquent in its taxes, it is not included in the organization's lists of recommended lodging. In the past that has prompted compliance.

The increase in revenue from the tax in recent years may also result from the addition of new hotels and motels in Knoxville—and the renovation of others leading to more stays. Bumpas points out major renovations at six local hotels that have been completed in the last two years, or will be by this year.

One of the hard things about judging the effectiveness of Knoxville's tourism effort is that the hotels/motels and travel agents are also doing their own thing. If a motel chain has a successful promotion that draws people off the interstate, it's good for the economy, but did it have anything to do with local tourism promotion?

Bumpas also points out that if a hotel chain raises rates, the amount of tax (which is a percentage of the rate) also goes up. So price increases can account for some growth in tax revenue.

That was one of the problems with Gloria Ray's compensation package, which seemed to grant her the credit for any increase in taxes, regardless of what might have been responsible—rising rental rates or promotions taken by hotels/motels or other tourism promotion groups.

The April occupancy rate for Knoxville this year is up 7 percent over April of last year. Why? I don't have a clue, insert your reason here. (Festivals?)

It is generally believed locally that University of Tennessee football games are a driver of Knoxville tourism. Tax revenue is highest in vacation months—June, July, and August (collected in July, August and September). But there is also a good spike for October (collected in November), which might be attributed to an invasion of Crimson-clad football fans. But how to explain that last October's results were $602,460 compared to $477,936 two years before? The Alabama game was in Tuscaloosa. However, games in Neyland in October did include Georgia, LSU, and South Carolina.

The amounts for the first quarter of this year are higher than other months in previous fiscal years and are on pace to outdistance them. Indeed, the total collections for February of this year were as high as most summer months in 2010 and 2011. Why?

I did hear one theory in doing interviews for this piece. While the hotels/motels pay their taxes, do they fudge a bit on when they pay them? In other words, a high February total may be the result of some residual Christmas season or New Year's business finally being sorted out.

In conclusion, taking tax totals month to month should not to be treated as gospel—and are not suitable to determine anybody's compensation. The variables in amounts, reasons, and timing are too imprecise.


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