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The 2% assessment for tourism promotion was voted on and assessed by hoteliers on themselves per proposition 218 rules. This is the same process used by communities to assess themselves for landscape maintenance of road medians in certain communities. It isn’t a “tax” because the City doesn’t allocate the fund and the money does not come into the General Fund.
First, let’s deal with this question of whether this is a self assessment. This is important because it makes it sound like it isn’t a tax on visitors, but rather a sacrifice the hotels are making. Look at the facts: When person stays in a hotel room in San Diego, they pay 10.5 percent of their bill to the city and this additional 2 percent to a district set up to market San Diego tourism.
Williams calls that a self assessment. But is it?
The idea is that this is like a normal business improvement district or maintenance assessment district that pays for, as he says, “landscape maintenance of road medians” and other things. In business improvement districts, like Little Italy, businesses pay a fee to a common pot, which is used to improve or promote the area for the good of neighborhood commerce.
For these businesses, participating in the business improvement district is a cost. And it’s one they have to incur even though their competitors might not have the same cost. That’s a self assessment. A restaurant in Little Italy might be part of the business improvement district, but it cannot just pass the cost of it on to their customers. Why? Because if they do, another restaurant in another neighborhood might offer demonstrably lower prices. They have to be judicious and competitive.
Here’s how Vlad Kogan put it in another comment:
In BIDs, businesses come together and vote to increase the amount THEY pay. They don’t vote to increase the amount their customers pay. (Of course, they could individually try to pass on these higher cost to their customers in the form of higher prices, but their ability to do so would be constrained by market forces.)
The hoteliers did not want to do this. They wanted to have the benefit of a shared common pot but pass the consumer the bill. They knew they had to all do it or else one of them would have a competitive advantage.
So they agreed to all put a 2 percent fee on their customer’s bills. It’s a tax. It is exactly like the transient occupancy tax. It’s just a private tax controlled by the hotels, not the city. It’s a great deal for them as they can fully control it.
They’ll argue it is a self assessment, as the 2 percent represents money they could have charged their customers. But that’s the point. It’s not guaranteed they could have. They would have had to test the market like good old capitalists.
Reader Fryefan wrote this (emphasis mine):
Unless there are anti-trust or failure-to-inform problems, hotels, individually or in collaboration, could assess a 3% “Let’s Improve Fryefan’s Retirement Income” fee on room charges–they are private businesses and can charge electricity surcharges, access to the health club fees, or anything else their customers will tolerate.
That’s the point, customers have little choice but to tolerate the fee. All hotels with 70 or more rooms in the city assess it. That’s 183 hotels to be exact. Usually, the right to pass a levy onto residents or visitors is reserved for the government. This, essentially, is a private tax. And that it’s controlled by the businesses that have to deal with it, and have to see a return on the investment, is exactly why it enjoys the support of people so ardently opposed to other new taxes in the city — leaders like Councilman Carl DeMaio and Kevin Faulconer.
Ultimately, it was a city decision. The city had to administer the vote of the hoteliers to decide to do this and the City Council had to sign off on it. If Fryefan is actually a fan of former City Councilwoman Donna Frye, he might want to know that she voted against it.