Scottsdale’s bed tax funds growth, improves quality of life

Scottsdale’s bed tax funds growth, improves quality of life

By Rachel Pearson, Vice President of Community and Government Affairs, Experience Scottsdale

Eight years ago, Scottsdale voters approved Proposition 200, an initiative championed by the tourism and hospitality industry, to generate additional revenue from Scottsdale visitors. Since that vote, visitors have paid millions in taxes to support our economy and elevate our quality of life.

That’s because Prop. 200 not only increased Scottsdale’s bed-tax rate but also designated specific uses for the bed tax. While Scottsdale has benefited greatly from these changes, Experience Scottsdale often receives questions about the nature of the bed tax.

Let’s start by defining the bed tax. Cities throughout the United States charge local transient lodging taxes – consumption-based taxes paid by guests staying overnight at hotels, resorts and short-term vacation rentals. Cities use these collections in various ways, with most investing at least a portion of their bed-tax revenue into destination promotion to leisure travelers and meeting planners.

Scottsdale hoteliers, along with the Scottsdale Chamber of Commerce and the Scottsdale Charros, advanced the initial proposal to create a 2 percent transient lodging tax in 1977. Since then, Scottsdale hoteliers and the larger tourism industry have supported bed-tax increases to ensure the City of Scottsdale has the necessary dollars to promote the destination and to invest in community capital projects that improve the visitor experience and the quality of life for residents.

Although this additional tax on customers can create a competitive disadvantage, Scottsdale hoteliers understand the importance of reinvesting dollars back into the community as well as the industry itself – creating a self-sustaining funding mechanism.

Today, as a result of Prop. 200, Scottsdale hotels, resorts and short-term rentals collect a 5 percent transient lodging tax from guests. Those dollars are remitted to the Arizona Department of Revenue, which then distributes the funds to the City of Scottsdale. In 2017, the City received $18.6 million in bed-tax funds.

As approved by Scottsdale voters, half of Scottsdale’s bed-tax revenue goes to destination marketing, while the remaining half is distributed to various programs and contracts based on a financial policy established by the Scottsdale City Council. That revenue is divided among the General Fund, tourism-related event support and development, tourism administration and research, tourism capital projects, and one-time projects or events. Over the years, the City’s portion of bed-tax revenue has improved WestWorld of Scottsdale, built Western Spirit: Scottsdale’s Museum of the West, expanded Canal Convergence, enhanced Old Town promotions and activations and more.

The 50 percent for destination marketing is contractually allocated to Experience Scottsdale to promote Scottsdale as a vacation and meetings destination. Through destination promotion, Experience Scottsdale generates hundreds of thousands of incremental visits from leisure travelers and fills hundreds of thousands of room nights from meetings groups – visitors and groups that may not have otherwise come to Scottsdale. Bed-tax dollars are the only city tax dollars used by the organization, yet every dollar invested by Experience Scottsdale in marketing and sales directly generates $67 in visitor spending and $3 in local tax revenue for the benefit of Scottsdale residents.

But the bed tax isn’t the only way Scottsdale visitors enhance our city. When tourists come to Scottsdale, they don’t just spend money on their hotel rooms. They rent cars, fill up gas tanks, eat out, visit museums, golf, shop and much more. In doing so, they support our local businesses and pay millions in sales taxes. According to the City of Scottsdale, tourists account for 15 percent of sales tax collections. In fiscal year 2016-17, that totaled $24.9 million.

Unlike the bed tax, which has specific designated uses, the sales tax revenue generated by visitors funnels directly into the General Fund. From there, city leaders have the flexibility to appropriate the revenue to meet Scottsdale’s needs. That money pays for police, fire, streets, water, land preservation and other city services of importance to this community.

Tourists play an essential role in our community, and domestic overnight visitors to Scottsdale leave behind an economic impact of $2.3 billion. Through the bed tax and sales tax, these visitors strengthen our economy and ensure Scottsdale maintains a high quality of life and a robust tourism industry. 

Rachel Pearson is the vice president of community and government affairs for Experience Scottsdale, which is responsible for promoting the Scottsdale area as a premier travel and meetings destination to national and international leisure visitors, travel agents, tour operators, meeting planners and media.