Hotel-Motel Taxes and Tourism Q&A

October 1, 2006

Updated October 24, 2008.
 
Georgia is fortunate to have a thriving tourism industry. According to most recent information available from the Georgia Department of Economic Development, Georgia’s tourism industry employs 200,000 Georgians, produces $25 billion in tourism expenditures and $6 billion in resident wages; and generates $708.5 million in state and local tax revenue. Across the state, cities have been able to capitalize on tourism as an important component of their economic development efforts. To further illustrate the impact of tourism in our state, an estimated 48 million people travel to and through Georgia annually. Whether your city has a relatively large or small tourism industry, the state provides municipalities with an option to capture revenues from tourists who stay in local hotels through the imposition of a hotel-motel tax. Revenues from this tax can be used for a variety of projects that will help promote a city as a tourist destination for meetings, conventions, historic and cultural travel, and other types of attractions.

Our city is considering imposing a hotel-motel tax. What are the requirements under state law for levying the tax?
Cities may levy and collect an excise tax of a rate of up to 3 percent or at a rate of ,5,6,7 or 8 percent on charges made for rooms, lodging or accommodations furnished by hotels, motels, inns, lodges, tourist camps or campgrounds. The law provides several different provisions for levying the hotel-motel tax. The amount of the levy and expenditure requirements varies depending on which alternative is chosen.

What can the revenues from a hotel-motel tax be used for?
Hotel-motel taxes are authorized by O.C.G.A. § 48-13-51. Each specific paragraph within O.C.G.A. § 48-13-51(a) has its own expenditure requirements, and each city should familiarize itself with the provisions of the paragraph under which it levies the tax. For example, while the law does not require a city levying a hotel-motel tax at the rate of 3% or less pursuant to O.C.G.A. § 48-13-51(a)(2) to spend any of the proceeds for any particular purpose, a city is required to expend at least the same percentage of the tax that was spent the previous year for the purposes of promoting tourism, tradeshows and conventions for those purposes. Additionally, if a city levying a hotel-motel tax at the rate of 3% or less contracted with the state, a department of state government, a state authority, or a private sector nonprofit organization for the expenditure of funds during the prior year, the city is required to contract with one or more of such entities for the expenditure of funds during the current year.

Importantly, once a city adopts a hotel-motel tax using any authorizing paragraph in (a) other than (a)(2), these requirements no longer apply. Hotel-motel tax rates authorized by other paragraphs within O.C.G.A. § 48-13-51(a) typically only restrict those tax revenues that exceed the revenues that would be collected at a rate of 3 percent. Generally speaking, cities levying a hotel-motel tax at a rate of at least 5 percent may use the hotel-motel tax revenues equaling revenues that would be collected at the rate of 3 percent for general fund purposes. The additional proceeds from the tax – revenues collected in excess of revenues that would be collected at the rate of 3 percent—typically must be used for promoting tourism, conventions and trade shows, or for other similar purposes specified in the authorizing paragraph.

The General Assembly amended the hotel-motel tax law in 2008 in an effort to simplify the process of enacting hotel-motel tax provisions that are particular to each city or county and to eliminate the proliferation of paragraphs crafted to allow specific cities or counties to levy a hotel-motel tax at a rate of 6, 7, or 8 percent. In so doing, the General Assembly created a new process for levying hotel-motel taxes at rates greater than 5 percent (see note 1) . Importantly, the processes of newly levying a hotel-motel tax at a rate of 3 percent or less and at a rate of 5 percent (see note 2) remain unchanged. Moreover, the new process does not impact existing hotel motel tax levies of any rate but is prospective in nature. A city that is currently levying a hotel-motel tax at any rate may continue to do exactly what it is doing unless and until the city chooses to change its rate of taxation to a rate in excess of 5 percent (see note 3) or chooses to change the required uses of the hotel-motel tax revenue.

In the future, any city desiring to newly levy a hotel-motel tax at a rate in excess of 5 percent may do so only after the passage of local legislation authorizing the tax. As an initial step, after consulting with relevant destination marketing organizations, hotel owners, and others in the tourism industry, a city will adopt a resolution stating the proposed new hotel-motel tax rate, the allocation of proceeds, and the projects, if any, that will be funded by the tax. Under the new process, the city is required to spend the tax revenues that would be collected at the rate of 5 percent in accordance with the general 5 percent tax rate authorized in O.C.G.A. § 48-13-51(a)(3) (see note 4). At least half of the tax revenues collected in excess of amounts that would be collected at the rate of 5 percent are required to be spent through a contract with a destination marketing organization (see note 5) for purposes of promoting tourism, trade shows and conventions. The remaining revenues, if any, collected in excess of amounts that would be collected at the rate of 5 percent are required to be spent for tourism product development.

In addition to the requirement for the city to state the allocation of proceeds, the subsequent local legislation authorizing the new tax rate and purposes will include information detailing the purposes for which revenues collected in excess of the revenues that would be collected at a rate of 5 percent will be expended. Following the passage of the local legislation and its approval by the Governor, the city council should adopt an ordinance officially repealing, if necessary, the previous hotel-motel tax authorizing paragraph and installing the new hotel-motel tax rate and purposes. The new rate and purposes will become effective no sooner than the first day of the second month following the adoption of the ordinance by the city council.

What is tourism product development?
Recognizing that having a good tourism product is important for enhancing Georgia’s status as a tourism destination, the 2008 legislation authorizes the use of a limited amount of the hotel-motel tax revenue for capital projects and operations costs helpful or necessary to attract tourism. Tourism product development (see note 6) is defined as “the expenditure of funds for the creation or expansion of physical attractions which are available and open to the public and which improve destination appeal to visitors, support visitors' experience, and are used by visitors. Such expenditures may include capital costs and operating expenses.
 
Tourism product development may include:
  • Lodging for the public for no longer than 30 consecutive days to the same customer;
  • Overnight or short-term sites for recreational vehicles, trailers, campers, or tents;
  • Meeting, convention, exhibit, and public assembly facilities;
  • Sports stadiums, arenas, and complexes;
  • Golf courses associated with a resort development that are open to the general public on a contract or fee basis;
  • Racing facilities, including dragstrips, motorcycle racetracks, and auto or stock car racetracks or speedways;
  • Amusement centers, amusement parks, theme parks, or amusement piers;
  • Hunting preserves, trapping preserves, or fishing preserves or lakes;
  • Visitor information and welcome centers;
  • Wayfinding signage;
  • Permanent, nonmigrating carnivals or fairs;
  • Airplanes, helicopters, buses, vans, or boats for excursions or sightseeing;
  • Boat rentals, boat party fishing services, rowboat or canoe rentals, horse shows, natural wonder attractions, picnic grounds, river-rafting services, scenic railroads for amusement, aerial tramways, rodeos, water slides, or wave pools;
  • Museums, planetariums, art galleries, botanical gardens, aquariums, or zoological gardens;
  • Parks, trails, and other recreational facilities; or
  • Performing arts facilities.
While the use of hotel-motel tax revenue for tourism product development is somewhat limited, the availability of this revenue for capital projects related to tourism should assist cities with creating or enhancing tourism destinations when doing so would have previously been difficult if not impossible. Notably, cities are not required to contract with any entity for the expenditure of tourism product development funds; however, it is possible that the public works bidding laws or the city charter will require a city to contract with another entity for tourism product development capital projects.

How must the tax be applied and collected?
The hotel-motel tax must be collected only during the initial 30 consecutive days of continuous occupancy (see note 7). The tax cannot be applied to charges for meeting rooms and facilities or to rooms, lodgings or accommodations that are provided without charge. The tax must also not be applied to rooms furnished to Georgia state or local government officials and employees traveling on official business or to rooms furnished to persons due to the destruction of their home or residence by fire or other casualty.

What other requirements apply to the hotel-motel tax?
Cities that impose a hotel-motel tax must include information about hotel-motel tax collections in their annual report of local government finances to the Georgia Department of Community Affairs. The report must include a schedule of all revenue from the hotel-motel tax that is spent for the promotion of tourism, conventions and tradeshows, and for any other purpose required by the hotel-motel tax law. The schedule must identify the project or projects funded and the party or organization with whom the city contracted for the expenditure of hotel-motel tax funds. Additionally, the city must provide a copy of its current ordinance, which must include a reference to the authorizing paragraph, with the Department of Community Affairs.

Our city has a hotel-motel tax. How can we be sure that we are receiving the correct amount of revenue from lodging providers in our community?
GMA offers a Hotel-Motel and Alcohol Tax Revenue Recovery Service that can help cities find out if they are receiving the correct amount of revenue from these taxes. The service enables cities to insure that lodging providers are accurately complying with the city's hotel-motel tax ordinance and paying the city correctly. In addition, through this service cities can verify the revenue from alcoholic beverage excise taxes. This program may be especially important if your city imposes a mixed drink tax.

In addition to reviewing these revenue sources, city ordinances and policies pertaining to the administration of the taxes are also reviewed. After the review is completed, GMA provides the city with a report listing any underpayments, and provides general information about the administration of the hotel motel tax that can be shared with the lodging providers. GMA also help with any appeals presented as a result of either a hotel or alcohol review.

How does GMA determine whether hotel owners are paying correct amount of hotel-motel tax to a city?
Through the service, a city can opt to have their hotel returns analyzed for compliance with the city's processes and determine if any of the lodging providers are potentially underpaying the tax. For those providers that are identified in the analysis and compliance phase of the review as potentially underreporting and thus under paying the tax, a more in-depth field audit can be done to determine the exact amount of the underpayment. At the end of the review a final report is issued to the city. The service is very comprehensive, including a review of the city's current ordinance and letters prepared for the city's use in communicating with the lodging providers. Through the service, a city can also offer a seminar for the lodging providers to educate the owners and their staff on the proper administration of the tax.

How many cities have used this service and how much has been recovered in delinquent taxes?
Many cities have used the GMA Hotel/Motel and Alcohol Tax Revenue Recovery service in the past to review these revenue sources and have benefited with more than $2 million in unpaid taxes. Since 1999, GMA has assisted more than 40 cities in reviewing one or both of these revenue sources.

Who should I contact for more information about the hotel-motel tax?
For additional information about the requirements for the hotel-motel tax, and prior to taking action to impose such a tax, city officials are encouraged to consult with their city attorney concerning the various requirements of O.C.G.A. Section 48-13-51. 

Who should I contact for information about the GMA Hotel-Motel Tax recovery service?
Additional information about this service, including a link to a handout that describes the costs for the service, can be found on the GMA website. For further information, please contact Pam Helton by phone at 678-686-6275 or Lou Comer by phone at 678-686-6260.
 
Notes
(1). See O.C.G.A. § 48-13-51(b).
 
(2). While the process for using the general 5 percent rate found in O.C.G.A. § 48-13-51(a)(3) remains unchanged, levies at the rate of 5 percent authorized by other paragraphs are no longer available to any city that does not currently levy a hotel-motel tax pursuant to such a paragraph.
 
(3). The new process applies even if the city currently levies a tax at a rate in excess of 5 percent but chooses to terminate use of the current authorizing paragraph.
 
(4). Code Section 48-13-51(a)(3) requires proceeds to be expended as follows: “an amount equal to the amount by which the total taxes collected under this Code section exceed the taxes which would be collected at a rate of 3 percent for the purpose of: (A) promoting tourism, conventions, and trade shows; (B) supporting a facility owned or operated by a state authority for convention and trade show purposes or any other similar or related purposes; (C) supporting a facility owned or operated by a local government or local authority for convention and trade show purposes or any other similar or related purposes, if a written agreement to provide such support was in effect on January 1, 1987, and if such facility is substantially completed and in operation prior to July 1, 1987; (D) supporting a facility owned or operated by a local government or local authority for convention and trade show purposes or any other similar or related purposes if construction of such facility is funded or was funded prior to July 1, 1990, in whole or in part by a grant of state funds or is funded on or after July 1, 1990, in whole or substantially by an appropriation of state funds; (E) supporting a facility owned by a local government or local authority for convention and trade show purposes and any other similar or related purposes if construction of such facility is substantially funded or was substantially funded on or after February 28, 1985, by a special county 1 percent sales and use tax authorized by Article 3 of Chapter 8 of this title, as amended and if such facility was substantially completed and in operation prior to December 31, 1993; or (F) for some combination of such purposes. Amounts so expended shall be expended only through a contract or contracts with the state, a department of state government, a state authority, a convention and visitors bureau authority created by local Act of the General Assembly for a municipality, or a private sector nonprofit organization, or through a contract or contracts with some combination of such entities, except that amounts expended for purposes (C) and (D) may be so expended in any otherwise lawful manner.”
 
(5). “`Destination marketing organization’ means a private sector nonprofit organization or other private entity which is exempt from federal income tax under section 501(c)(6) of the Internal Revenue Code of 1986 that is supported by the tax under this article, government budget allocations, private membership, or any combination thereof and the primary responsibilities of which are to encourage travelers to visit their destinations, encourage meetings and expositions in the area, and provide visitor assistance and support as needed.”
 
(6). O.C.G.A. § 48-13-50.2(6).
 
(7). Prior to the 2008 legislation the tax could only be collected for the first 10 consecutive days of continuous occupancy.