With reservations already booked, room tax increase in July said to be awkward
(Feb. 8, 2019) The proposed half-cent increase to Ocean City’s room tax rate, which could be implemented for fiscal year 2020, which begins July 1, has hotel and property managers anxious over the prospect of having to tell clients who have already booked and paid for reservations they will need to pay a little more.
It’s either that for the lodging industry, or owners and operators will have to pay the half-cent tax increase themselves.
The Ocean City Council discussed the room tax issue at length during its meeting last Tuesday, after the Tourism Commission voted Jan. 3 to recommend bumping the room tax rate for hotels, motels and rentals from 4.5 to 5 percent.
The minutes of the meeting also showed that commission members preferred implementing the increase in 2020, rather than in July this year.
That six-month difference means a great deal to both parties: municipal government and the lodging industry, During the council meeting last week, Budget Manager Jennie Knapp said the rate increase would yield an additional $1.3 million in general fund revenues for the upcoming budget if it’s enacted in July for all of fiscal 2020.
Cutting the year in half and making the tax increase effective in January 2020, however, wouldn’t cut the revenue in half, but would reduce it by more than 60 percent — to $492,000, according to Knapp — because it would miss the prime vacation months.
Susan Jones, Ocean City Hotel-Motel-Restaurant Association executive director, said with numerous lodging establishments already having solid summer bookings, they are left with having to decide which of two bad options they want to pursue.
“In general, it’s not fair to tell a business they have to raise their prices when they’ve already budgeted for this year,” she said.
The resort began collecting room taxes in 1998 and last increased rates from 4 to 4.5 percent in 2008 as part of an agreement with the lodging industry to spend a portion of that on resort marketing. Although the Worcester County Commissioners would need to approve the change, the city has the ability to raise room tax rates to 5 percent without state authorization.
Tom Tawney, general manager Cayman Suites on 125th Street, who attended the council meeting last week, expressed shock upon comprehending the potential time frames.
“I thought the July 1 thing was … a misprint,” he said. “Surely they can’t be thinking about this July, but that was the case.”
Relieved the council devoted significant time to weighing the proposal, Tawney remains apprehensive the worst-case scenario may yet come to fruition.
“There’s no hotel that’s going to agree to any kind of tax increase in the middle of our season,” he said. “That’s almost ludicrous because we have reservations on the books.”
The topic also caused dissention on the council, with members voting 4-3 against an initial motion to request the Worcester Commissioners consider implementing the higher room tax rate countywide, before voting 5-2 to have Mayor Rick Meehan send a letter to county officials seeking the increased room tax rate.
Realtor Pat Terrill with Hileman Real Estate said to lessen the impact of higher fees, the increase should occur this fall when summer 2021 bookings are getting underway.
“There is no way in this world we can call all the people who already booked and paid,” she said. “What are you going to do, call and say, ‘Ocean City screwed up, they raised their taxes?’”
Tawney said the half-cent increase would be significant when applied to a booking for a larger group.
“On Friday, I took a reservation for the whole weekend and the whole place is booked,” he said. “I’m small fries, I’ve got 57 units here, [but] these big hotels with a hundred and some units, all of them are taking group reservations. You’re talking about rewriting a contract for another thousand dollars or something.”
Francis Scott Key Resort owner Annemarie Dickerson, while also alarmed the room tax boost could affect businesses’ bottom lines, suggested room taxes collected in West Ocean City be remitted to the resort and not county.
“My zip code is 21842 and my address is Ocean City,” she said. “I’m a strong proponent that West Ocean City, not just hotels but restaurants and retail, that we do benefit from the cumulative marketing efforts of Ocean City.”
Although Dickerson said the resort’s pursuit of additional revenue to maintain marketing budgets and to cover increased expenses is a worthwhile goal, she questioned the option discussed.
“I don’t believe that increasing the room tax is the way to go for Ocean City to achieve that goal,” she said.
Tawney said in addition to contacting guests with upcoming reservations, implementing the tax increase this July would require reprinting advertising material containing rate schedules, as well as tweaking internal booking systems.
“We’ve got operating systems here at the hotel that would all need to be updated,” he said.
With Cayman Suites closed during the offseason, Tawney said the profitability window is only open about half the year.
“I’m closed right now so I only have six months to make my money,” he said. “Right before the season starts and we’re raising the tax, that’s not going to help anybody out, restaurants or hotels.”