NCPA - National Center for Policy Analysis

Travel Taxes: The Hidden Trifecta

July 31, 2015

In recent years, in a drive toward more revenue, officials at every level of government have raised a trifecta of travel-based taxes dramatically. As a result, travelers bear large effective tax burdens that can amount to 30 percent higher costs in high-demand areas like New York City or Chicago.

In an analysis of cross-state tax levels, Jacob Kohlhepp, a research associate with the National Center for Policy Analysis found three main categories of taxation.

  • Hotel occupancy taxes: 22 states levy a statewide tax on lodging ranging from 3 to 13 percent. Cities also levy lodging taxes, with rates as high as 14 percent.
  • Car rental taxes: research suggests car rental taxes lead to 25 percent more expensive rentals within the area of the tax.
  • Airline taxes: Federal taxes on airline travel can amount to a near 30 percent surcharge on flights.

An average trip from Los Angeles to New York City will result in a 17 percent tax rate on all expenses, with more than half of this burden travel specific taxes that discriminate against travelers.

These taxes have the following effects:

  • Travel taxes eat into the budget tourists set for their vacation trips, which can result in lower revenue from excise and sales taxes on souvenirs.
  • Tax hikes in some geographic areas have been observed to lower tourism levels.
  • The demand for air travel is sensitive to price, and thus sensitive to taxation, especially on short vacation trips.

While travel taxes may seem politically attractive, it is clear that they have an economic cost.

Source: Jacob Kohlhepp, "Travel Taxes: The Hidden Trifecta," National Center for Policy Analysis, July 30, 2015.


Browse more articles on Tax and Spending Issues