Bizarre: US Virgin Islands Plans to Increase Hotel Taxes, Give the Extra Money Back to Hotels

The Governor of the U.S. Virgin Islands announced a plan to re-open the Frenchman’s Reef & Morning Star Marriott Beach Resort and along with it a government plan to increase hotel taxes from 12.5% to 17.5% — the highest in the United States and the highest in the Caribbean.

In contrast Hawaii’s hotel taxes are 13.25%, St. Maarten’s 5%, and Puerto Rico’s 9%.

The governor describes higher taxes as an “economic recovery fee.” And the extra 5% will be given back to the hotels, plus interest.

Which sounds to me like it’s just a price increase, guests pay more money and the money goes to the hotels. Except here the price increase is being enforced across the board by the government, so no hotel can undercut others seeking to raise prices, with the added layer of hotels sending the money to the government and then the government sending it back perhaps not in equal proportions or to the same hotels that paid in.

Credit: Frenchman’s Reef & Morning Star Marriott Beach Resort

The governor claims the revenue is to help rebuild from the 2017 hurricane, but payments will only be made into the fund from actual occupancy. And of course properties would generally have had insurance, payments from which would be funding reconstruction. Moreover if it’s worth rebuilding, based on the net present value of expected future income streams, financing would seem possible as well (or selling to someone else who would be able to rebuild and capture those revenue streams).

And if this were really about recovery from the hurricane, wouldn’t that suggest the tax ought to exist for a limited period?

Hotels don’t usually ask for higher taxes, this one was announced in conjunction with the Marriott’s planned re-opening in two years. That should tell you something.

Bill Tennis, executive vice president of DiamondRock Hospitality, thanked Governor Mapp for his “consistent support” and confirmed the hotel will reopen during the first quarter of 2020. In addition to making the hotel’s buildings more impervious to storms, Mr. Tennis anticipates an expansion of the pools and public spaces and upgrading the Morning Star portion of the property to what he described as a “premium” resort.

“When completed this will be a very significant investment by DiamondRock in the territory,” Mr. Tennis said. “We are particularly appreciative of Governor Mapp and his team’s efforts to assist the tourism industry by introducing this legislation today.”

The new tax to provide hotels with more revenue from their guests requires approval by the legislature.

(HT: Dennis L.)