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Taxing Times for Travelers

(March 2001)

While going over my car rental agreement at the airport in Manchester, NH, I noticed a $2.25 customer facility charge. When I asked the agent what this fee was for, she stated, "That's the airport fee to use the new sidewalk going to the garage." I rolled my eyes in disbelief—I had to pay $2.25 to walk on a sidewalk! On top of that, there was a 10 percent airport fee, a vehicle license fee of $2, an eight percent state tax, and a 50-cent fee labeled a "Frequent Flyer Tax Recovery Surcharge," since I had used my US Airways Dividend Miles to accrue miles. When all was said and done, these taxes increased my rental car bill by approximately 23 percent.

Taxes Are Growing

If you are a traveler, be prepared to dish out a good percentage of your hard-earned cash to the taxman. Industry figures estimate U.S. travelers will spend more than $80 billion this year in travel-related taxes, and local taxes are increasing at warp speed. A family of four traveling from Boston to Orlando for a week-long stay at Disney World would face just over $220 in travel taxes. The list of taxes seems to grow daily, significantly driving up the cost of traveling.

Air Travel & Airport Taxes

Every time you fly you pay a federal airline ticket tax of 7.5 percent plus a $2.25 per segment tax. According to the Air Transport Association (ATA), the segment charge will increase by 25 cents every year through 2003. In addition to these federal taxes, there are also local airport passenger facility charges (PFC) at most of the top 50 U.S. destinations. These too may rise because of a law signed last year. If you travel on international flights, be prepared to open your wallet even more; you will encounter customs user fees and federal inspection fees.

Then there are the airline fuel surcharges. A surcharge is not a government tax, but is instead, the way airlines pass along their increased fuel costs without changing their base fares. Fuel surcharges are hit-and-miss because airlines have not unilaterally imposed them. On average, fuel surcharges have been $10 per segment, but again, this varies by carrier.

Hotel Taxes

The bed tax is the government tariff assessed on most hotel rooms in the U.S. and abroad; overall, it can add between 10 and 20 percent to a hotel's advertised rate. According to recent figures from the Travel Industry Association of America (TIA) bed taxes averaged 12.36 percent in the top 50 destination cities in the U.S. In the U.S., taxes are excluded from quoted prices. However, in some foreign countries, such as the U.K. and France, the government requires hotels to include such taxes in the rates they quote so travelers know their total costs.

Car Rental Taxes

Out of all the travel taxes, car rental fees are the most confusing. The daily rate for your rental car is just the beginning. The base car rental tax rate averages 8.25 percent. In addition to this tax, most cities tack on numerous fees to the base rate, such as the sidewalk fee I was charged in Manchester. For example, many cities add surcharges averaging $2 a day, or they charge $2.50 per rental. Other cities charge a fee for renting cars off airport grounds, adding an additional 8 percent on average. Some even tack on an off-airport fee that averages an extra $2.75 per rental, and some states, such as again Connecticut, even add a tourism tax of a $1 a day.

Cruise Port Taxes

Cruises are very popular because of their basic approach to an "all-inclusive" vacation. However, the base price for the cruise often doesn't include port fees. Port fees, per-passenger fees that most ports-of-call charge for all cruise ships, are assessed separately to cover expenses associated with an individual country's port. Depending upon the length of the cruise, these fees usually average $100 or more per person.

Where Is The Money Going

All proceeds from PFCs are allocated to maintaining the airports' facilities. Revenues from airline user fees, including a tax on domestic airline tickets, a cargo waybill tax, an international departure tax, and taxes on aviation fuel go into the Airport and Airway Trust Fund. This fund was set up in 1970 to help maintain and improve the nation's aviation infrastructure. According to data from the Committee on Transportation and Infrastructure, user fee tax revenues into the trust fund this year will be approximately $9 billion. Sadly, for many years these tax revenues were being diverted to non-aviation spending, tax relief, and debt reduction. Only last year did former President Clinton release funds to start the necessary improvements for our aviation infrastructure. Every flier is paying the price for the years these funds were misappropriated. As an example, delays due to our beleaguered air traffic control system are all too commonplace. If the funds had been spent accordingly to begin with, we may not be dealing with this problem today. What's worse, it will take years for the system to get back on track.

In some cities, the travel tax money goes to help pay for new tourism facilities such as convention centers and visitor welcome centers, or to pay for advertising to encourage travelers to visit that community. In other cities, the travel tax money goes to general funds that are allocated to education, police, or social services in that community. Some cities do both. However, the most controversial spending of these taxes is sports-related. Cities that are renovating existing sports stadiums or building new ones have raised hotel and car rental taxes to help finance these projects.

Be Prepared

While taxes are necessary to support infrastructures for tourism, travelers need to educate themselves before departing on that vacation for which they've saved so hard. When pricing a trip, ask for the price including all taxes and surcharges. If you are unclear about certain fees, ask for a detailed explanation. That way, you can develop an accurate budget and avoid being surprised when faced with the actual bills.

Related Link

World Travel & Tourism Tax Policy Center

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