Can We Spend Lodging Tax Funds on That?
April 7, 2022
by
Eric Lowell
Category:
Lodging Tax (Hotel-Motel Tax)
Cities and counties may levy lodging taxes on all charges related to furnishing lodging at hotels, motels, short-term rentals, and recreational vehicle (RV) parks for stays of less than 30 days. Revenues received from these taxes are then restricted to the following uses:
- Tourism marketing,
- Marketing and operations of special events and festivals designed to attract tourists,
- Operations and capital expenditures of tourism-related facilities owned or operated by a municipality or public facilities district, and
- Operations of tourism-related facilities owned or operated by nonprofit organizations.
In jurisdictions with a population of 5,000 or more, entities can apply to the local Lodging Tax Advisory Committee (LTAC) for use of lodging tax funds. Eligible entities include convention and visitors’ bureaus, destination marketing organizations, nonprofits (e.g., main street organizations, lodging associations, or chambers of commerce) and/or cities and counties. LTAC applications must explain how the proposed use of funds will increase tourism. The local LTAC will then make funding recommendations to the jurisdiction’s governing body for final award.
MRSC frequently receives inquiries from local governments asking if a proposed use of lodging tax funds is allowable. Take the following quiz and see if you can determine if the proposed use (as indicated in the question) is allowable.
Question 1
Can lodging tax revenues be used to purchase a community clock or reader board?
- Yes
- No
Probably not. The use of lodging tax funds is to draw people from over 50 miles away and encourage them to stay overnight. A community clock or reader board would mostly benefit residents and would not likely be a draw for tourists. If the reader board only advertised tourist events, then perhaps a case could be made that such a use of funds would be allowable.
Question 2
Can lodging tax revenues be used to fund an event outside the jurisdiction’s boundaries?
- Yes
- No
- It depends
Maybe, it depends. The statute does not explicitly restrict the use of funds to those events that occur within the boundaries of the jurisdiction. Use of lodging tax funds should increase tourism and patronage of businesses within the jurisdiction. If an event in a neighboring jurisdiction will likely draw tourists and lead to overnight stays in your jurisdiction, then funding such an event could be an appropriate use of lodging tax funds.
Question 3
Can a local government use lodging tax funds to pay for increased police presence on event weekends?
- Yes
- No
Probably yes. If the city required an event promoter to have an additional police presence for an event, the event promoter could include operational costs in their application. Additionally, the city could also apply for lodging tax funds directly to pay for increased police services for such events.
Question 4
Could a local government award lodging tax funds to a local beauty pageant/talent show?
- Yes
- No
Likely not. The event promoter would need to show that the local pageant is a draw for tourists. If the pageant is limited to local contestants, then it might be difficult to demonstrate that the pageant would attract significant attendance from out-of-town visitors.
Question 5
Could a local government apply for and use lodging tax funds to make improvements to a municipal golf course?
- Yes
- No
- It depends
It depends. If the city can show that the golf course has a healthy number of tourists using it, then it could be an allowable use. If the municipal golf course is mainly used by locals, then most likely it would not be an eligible use of lodging tax funds.
Question 6
Can the governing body change the recommendations of its local LTAC?
- Yes
- No
This is a trick question as the answer is both yes and no. The governing body must choose to awards funds from among proposals recommended by the LTAC, and the only thing it can change is the amount awarded to an applicant. The governing board must submit these proposed funding changes to the LTAC for review and comment, and then it must wait 45 days before taking any final action on funding.
Question 7
Can for-profit entities apply for lodging tax funds?
- Yes
- No
Yes. The statue does not explicitly prohibit for-profit entities from applying for lodging tax funds. The purpose of the funds is to promote tourism in the jurisdiction by attracting individuals traveling over 50 miles away and encouraging overnight stays.
For further information on lodging taxes, check out MRSC’s Lodging Tax (Hotel-Motel Tax) topic page. Lodging taxes are also discussed in MRSC’s Revenue Guide for Washington Cities and Towns and Revenue Guide for Washington Counties. Additionally, MRSC recently held a webinar on lodging taxes, and the webinar recording is available in our On-Demand Webinars under the tab “Most Recent Webinars.”
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.
About Eric Lowell
Eric Lowell joined MRSC in December 2020 as a Finance Consultant. He has been involved in local government finance for over 13 years, including working in city government as well as for a special purpose district.
Eric received a B.A. in Secondary Education from Arizona State University and a B.S. in Accounting from Central Washington University.
