NCPA - National Center for Policy Analysis


March 23, 2010

One of the properties my company owns is a 100-room limited-service hotel in Iowa, says Mike Whalen, chief executive of Heart of America Restaurants and Inns.  Let me talk about the taxes this one place pays.  I'll use 2008 numbers.  Round 1:

  • For starters, we pay property taxes to the tune of about $199,000 annually.
  • Next, there is a 7 percent "pillow tax" that generates about $162,000 annually.
  • Then we pay a 6 percent sales tax on revenue that yields about $124,000 annually.
  • Then we also pay sales tax on things like toilet paper, shampoo, soap, continental breakfast food and amenities and other items that the state of Iowa says are not really part of the product we sell because it says we are selling space. These extra sales taxes come to about $1,800 a year.

Now on to Round 2:

  • This little hotel also pays about $3,000 a year in various licenses and fees. Payroll taxes come to about $60,000.
  • The federal government says the depreciable life of a hotel is 39.5 years, but we refurbish the hotel on a constant basis and pay sales tax on related purchases, such as new carpet, mattresses and bedding, and even paint.
  • Now, between Round 1 and Round 2, we are at $548,000 taxes annually.

Round 3 is income tax at the federal and state level.  I am not going to tell you these numbers, but I can tell you they can be substantial. Because the hotel is owned by a Subchapter S corporation, in which taxes are paid by shareholders rather than the corporation, the income is reported on my personal income-tax return even though it's not really my personal money.   But President Obama and many in Congress think we don't pay enough in taxes because we are "rich."

Oh, by the way, if I sell the hotel, I will pay a hefty capital gains tax of 25 percent, and it's probably going up. Alternatively, when my wife and I die, I will pay another 45 percent if the estate tax returns in 2010. But don't worry:  We have diverted money from productive investments to pay for life insurance to partially pay this bill.

Thank God entrepreneurs are optimists, or they would never start, says Whalen.

Mike Whalen, "The 'Undertaxed Rich,'" Washington Times, March 20, 2010.

For text:


Browse more articles on Tax and Spending Issues