You asked (1) how the state hotel tax is structured, (2) where the tax revenue goes now and where it used to go, and (3) how much revenue the tax generates. You also asked for a legislative history of bills proposing a local option hotel tax, a summary of their major provisions, and what arguments were made for and against them.

SUMMARY

The so-called “hotel tax” is a 12% state tax on charges by hotels and lodging houses (including motels and bed and breakfast accommodations) for occupying a room for less than 30 consecutive days. The 12% rate is in lieu of the regular 6% sales tax. As of FY 06, all revenue from the tax goes to the state's General Fund. Until FY 06, some of the tax revenue was allocated by statute for tourism districts and state tourist and arts attractions and to the Connecticut Commission on Culture and Tourism. FY 06 hotel tax revenue totaled $ 76. 6 million.

A computer search of bills introduced in the General Assembly from 2000 to 2006 shows eight bills to either allow municipalities to impose a local tax on hotel room rentals or to allocate a portion of the state tax to the municipality where it was collected. Though three of these bills were reported favorably (JF'd) by the Commerce Committee, all three, along with the five that were referred directly to the Finance, Revenue and Bonding Committee, died in Finance. None reached the House or Senate floor.

Major arguments in favor of the local option hotel tax were that the revenue would provide property tax relief and help offset the special burdens tourism imposes on certain municipalities. Major arguments against the bills were that (1) municipal hotel taxes would create a competitive disadvantage for certain hotels, (2) the revenue from such a tax should be dedicated to tourism, and (3) such a tax would not be fair to all municipalities.

STATE HOTEL TAX

Current Structure and Revenue

In lieu of the 6% sales tax, the state imposes a special sales tax of 12% on the amounts hotels and lodging houses charge for renting rooms for any period of 30 consecutive days or less (CGS § 12-408(1)). The tax is known as the “hotel tax” or “room occupancy tax. ” Hotel tax revenue goes to the state's General Fund. In FY 06, the state received $ 76. 6 million from the tax, according to Mike Galliher of the Department of Revenue Services' Tax Research Unit. Table 1 shows monthly revenues for calendar years 2004 and 2005 and the first 10 months of 2006.

Table 1: Monthly Hotel Tax Revenue

Source: Department of Revenue Services

Previous Hotel Tax Revenue Allocations

Before FY 06, a portion of hotel tax revenue was diverted by statute to various specified entities and activities (CGS § 32-205, since repealed). In FYs 04 and 05, the legislature earmarked $ 20 million of the revenue each year for the Connecticut Commission on Culture and Tourism. For

FY 04, the commission was required to allocate specific amounts to the activities and entities shown in Table 2. There was no such statutory allocation for FY 05.

Table 2: Statutory Hotel Tax Revenue Allocation for FY 04

Before 2003, the law required the revenue services commissioner to set aside a specific percentage of hotel tax revenue, depending on to the size of the municipality where it was collected (see Table 3) for tourism districts.

Table 3: Pre-2003 Hotel Tax Revenue Diversions

The segregated revenue was allocated to the tourism districts containing the municipalities where it was collected, with certain revenue collected in certain cities specially earmarked as shown in Table 4.

Table 4: Pre-2003 Statutory Hotel Tax Revenue Allocations

Before 2003, the law also required the revenue services commissioner to divert enough revenue from hotel tax receipts to provide the annual funding allocations shown in Table 5.

Table 5: Additional Pre-2003 Statutory Hotel Tax Revenue Allocations

PROPOSALS FOR LOCAL HOTEL TAX

2000 Session

Proposed Bill 296, An Act Concerning the Hotel Lodging Tax, reduced the hotel tax rate from 12% to 10% and gave municipalities the option of imposing a local hotel tax of up to 2%. The bill was referred to the Commerce Committee, which took no action on it.

2002 Session

Proposed Bill 106, An Act Concerning the Sales Tax on Hotel Room Occupancy, reduced the state hotel tax from 12% to 10% and gave municipalities the option of imposing a local hotel tax up to 2%. The bill was referred to the Commerce Committee, which held a subject matter public hearing on it on February 28, 2002. After the hearing, the committee voted to fully draft the bill. Committee Bill 106 established a new regional tourism grant program and allocated 2% of hotel tax revenue to fund the grants.

The committee reported the bill favorably to the Finance, Revenue and Bonding Committee on March 19. Finance took no action on the bill.

2003 Session

In 2003, legislators introduced five bills requiring the state to share hotel tax revenue with municipalities. Three were referred to the Finance, Revenue and Bonding Committee, which took no action on them. Two were referred to the Commerce Committee, which held a subject matter public hearing and then took no further action. The bills were:

• PB 309, An Act Concerning a Municipal Share of the Hotel Tax, required an unspecified portion of the state revenue from the hotel tax to be shared with the municipality where the hotel is located. Referred to Finance – No Action.

• PB 310, An Act Concerning a Municipal Share of the Hotel Tax, required the state to return 0. 5% of the hotel tax revenue it collected in a municipality to the municipality. Referred to Finance – No Action.

• PB 330, An Act Concerning a Local Option Hotel Lodging Tax, reduced the state tax by 2% and allowed municipalities to impose a local tax of up to 2%. Referred to Finance – No Action.

• PB 5727, An Act Concerning the Sales Tax Paid by Hotels and Lodging Houses, allowed municipalities to impose a sales tax on hotels and lodging houses within the municipality and required the tax revenue to go to the municipality's general fund. Referred to Commerce - Subject matter public hearing held on 2/27/03 – No further action.

• PB 5728, An Act Concerning Imposition of a Tax by Municipalities on Hotel Sales Receipts, allowed municipalities to impose a 2% tax on hotels in the municipality and required them to deposit the revenues in their general funds. Referred to Commerce - Subject matter public hearing held on 2/27/03 – No further action.

2004 Session

In 2004, the Commerce Committee raised HB 5539, An Act Concerning the Sales Tax on Hotel Occupancy, which gave 1/6 of the tax revenue (2%) collected from each hotel to the municipality where the hotel is located. The committee held a public hearing on the bill on March 4, 2004. On March 18, it JF'd a substitute version of the bill to the Finance, Revenue, and Bonding Committee, which took no action.

ARGUMENTS FOR AND AGAINST LOCAL HOTEL TAX PROPOSALS

In the Commerce Committee's public hearings on the local hotel tax proposals described above, witnesses made the following arguments for and against the bills:

For

Against

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