Lodging taxes help cities support tourism and the local economy.

By Municipal Research and Services Center (MRSC) staff

Festivals and other events do more than foster community pride. They also attract tourists who stay in local hotels, dine in local restaurants, and shop in local stores, boosting the economy. Cities can increase revenue, help draw visitors, and pay for some of the impacts of tourism on the local economy through the use of a lodging tax.

The lodging tax, also known as the “hotel-motel tax,” can be imposed and spent in support of tourism. Any city or town has the authority to levy lodging taxes on all charges for furnishing lodging at hotels, motels, and short-term rentals, including Airbnb vacation rentals, RV parks, and bed-and-breakfasts, for periods of time less than 30 days. The tax is collected as a sales tax and paid by the customer at the time of the transaction. These taxes may be imposed by the legislative body and do not require voter approval.

Lodging tax options

There are two lodging tax options in Washington:

• A “basic” or “state-shared” lodging tax up to 2% that is taken as a credit against the 6.5% state sales tax rate, so that the lodging patron does not see any tax increase.
• An “additional” or “special” lodging tax up to 2% on top of the state sales tax rate that results in a higher tax bill for the patron.

If a city imposes both options at the maximum rate, the total lodging tax rate would be 4%. However, a few specific jurisdictions are not authorized to collect certain lodging taxes, while others have additional authority.

Use of revenues

All lodging tax revenues—including both the basic and additional lodging taxes—must be used for tourism promotion, acquisition of tourism-related facilities, or operation of tourism-related facilities, including:

• 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 a public facilities district; or
• Operations of tourism-related facilities owned or operated by nonprofit organizations (but not capital expenditures).

Cities and towns may use the funds either directly or indirectly through a convention and visitor’s bureau or destination marketing organization. It was the state legislative intent to provide local control over the use of lodging tax revenues and to provide for the distribution of this tax back to those organizations and agencies that promote tourism within the city.

The guiding principle is that these facilities should be used by tourists. So, for example, a municipal golf course would likely be a permitted lodging tax expenditure in vacation destination Chelan, while it probably would not be if it were in a residential neighborhood in Spokane. Each situation is unique and requires careful assessment.

Application and award process

The entities that may apply for lodging tax funding are:

• Convention and visitors bureaus;
• Destination marketing organizations;
• Nonprofits, including main street organizations, lodging associations, or chambers of commerce; and
• Municipalities (defined as any city, town, or county).

All applications must include estimates of how funding the activity will result in increases to the number of people staying overnight, traveling 50 miles or more, or coming from another state or country. There is no requirement that priority for funding be given to applicants expected to generate the largest number of tourists.

Excerpted from “Revenue Guide for Washington Cities and Towns” on MRSC.org.