More Minnesota cities are adopting a “lodging tax”

Suburbs like Woodbury, Apple Valley, Burnsville, Lakeville, Maple Grove, and Stillwater have followed the lead of Duluth, Minneapolis, and St. Paul in levying an added 3 percent sales tax on hotel stays.

Via Adobe Stock

Ron Reagan said the nine most terrifying words in the English language are “I’m from the government, and I’m here to help.”

A lot of the time, these words ring true simply because bureaucrats, special interest groups, and politicians are always trying to come up with the next big scheme to divvy out more dollars, even if the new-fangled scheme accomplishes the exact opposite of what is supposedly intended.

That looks to be the case with the expansion in Minnesota of a “lodging tax” for “tourism promotion.” As reported by the Pioneer Press, suburbs like Woodbury, Apple Valley, Burnsville, Lakeville, Maple Grove, and Stillwater have followed the lead of Duluth, Minneapolis, and St. Paul in levying an added 3 percent sales tax on hotel stays. Now, Woodbury is eyeing the tax, and Cottage Grove will start collecting the tax in December.

The usually-3-percent lodging tax is above and beyond other state and local sales taxes: The state already applies a 6.9 percent tax to all sales in the state of Minnesota, and cities like Minneapolis and St. Paul tack on an extra 3 and 4 percent, respectively, for hotels with more than 50 rooms. Then there’s a Hennepin County sales tax, and a county tax for transportation, along with a city sales tax in cities including Minneapolis.

Yet the cities enacting the tax are spinning the new levy as pro-growth, and pro-business.

In Cottage Grove, the Chamber of Commerce—a group some say is notorious for demanding corporate welfare and supporting unfettered illegal immigration—is gladly helping to develop a “visitors bureau” to spend the tax revenue. 

That’s because, under state law, 95 percent of the lodging tax collected must go to “tourism promotion.” But the definition of what constitutes tourism promotion appears to be open-ended.

While it’s probably fair to question whether Cottage Grove really is a tourism destination, “economic development specialist” Matt Wolf said that Cottage Grove is a tourist destination, because there was a national softball tournament that took place in the suburb last year. 

That means that the revenue generated by the new tax can be used by city officials to promote or subsidize events such as these, including future softball tournaments. And any building connected to tourism can be subsidized by the tax too. In Woodbury, the city plans to use the revenue to pay for “Central Park,” Woodbury’s indoor garden and event space.

Do no harm

If we must have bureaucrats and the Chamber of Commerce, they should first do no harm. Often, the base way to do no harm is to have an ounce of the thing the folks call common sense. Yet in this case, the stated reason for the tax seems ridiculous under any test of common sense: 

Cities will charge consumers more for hotel stays, in order to spend money on a billboard here and there, and on a local building the city shouldn’t have built and can’t fund through normal revenues, in order to convince other consumers to choose that city for a hotel-stay. 

For an example of the ridiculousness at play, here’s the byline of the Pioneer Press article: “A lodging tax could fund promotions to help persuade guests of wedding venues such as Hope Glen Farm to stay in the Cottage Grove area a day or two longer, city officials say.”

So city officials, no doubt with college degrees that cost thousands of dollars, are really trying to say that making wedding guests pay more for hotel rooms is going to convince them to stay in Cottage Grove for a few more days? And how will these prospective patsies be convinced? With billboards? Radio ads? 

For anyone buying into this, I’ve got a bridge to sell you. 

Worst of all, despite the involvement of the Chamber of Commerce, the hardest-hit in the long term will be our greater Twin Cities area businesses, who need to pay for employees or customers from other areas of the country to shack up in the Twin Cities for a night or two. This means higher costs for the businesses that employ us, and over time it means one less reason for a business to set up shop in Minnesota, or remain in Minnesota. 

All this is why we need smarter people, willing to take the time, in local government. It isn’t a glamorous job, but somebody’s got to do it in lieu of the busy-bodies.

Willis Krumholz

Willis L. Krumholz is a fellow at Defense Priorities. He holds a JD and MBA degree from the University of St. Thomas, and works in the financial services industry. The views expressed are those of the author only. You can follow Willis on Twitter @WillKrumholz.