State could miss $330M in tax revenue from depleted hospitality industry

Indiana could miss out on more than $330 million in tax revenue in 2020 due to the coronavirus pandemic’s impact on the state’s hospitality industry, according to a study released Thursday.

A report by the American Hotel & Lodging Association found abysmal occupancy rates and hotel performances during the health crisis will mean the state will see $331.4 million less in local and state tax revenue than expected under regular conditions.

States and municipalities throughout the country are expected to miss out on about $16.8 billion in taxes this year that would have been generated by the industry, according to the report. The study did not “include the potential, significant, knock-on effects on property taxes supported by hotels (nearly $9B),” the report said.

Indiana is ranked 16th among states on the list in expected total reductions. The study estimates the state will miss out on $142 million in innkeeper taxes—which range from 3% to 10%, depending on the county; $10 million in sales; $166.5 million in gaming taxes; $8.3 million in personal income taxes; and $3.7 million in corporate taxes.

Chris Gahl, vice president of tourism and convention group Visit Indy, said the figures are not surprising given the hospitality industry’s widespread struggles over the past few months.

“Unfortunately, we’re not surprised by the loss of economic impact tied to coronavirus,” he said. “We had been bracing for the initial impact and the subsequent ripple effect that this virus has had and will have on our industry. We are more committed than ever to help get Indy back on track and invite visitors back, knowing we’ve been a state that has handled [this virus] with a great amount of respect and vigilance.”

Visit Indy itself has been tightening its belt over the past few months, and so has the Capital Improvement Board of Marion County, which operates the Indiana Convention Center and Lucas Oil Stadium.

The CIB, whose budget is $143 million this year, gets two-thirds of its income from tax revenue. During the board’s June meeting, it announced a revenue dip of about 50%, a rate that is expected to continue for the next several months. 

The American Hotel & Lodging Association’s tax revenue breakdown, provided by Oxford Economics, does not specifically discuss a basis for its calculations, although it attributes the figures to “the sharp drop in travel demand, hotel operations and room occupancy.” Such reports generally rely on estimates provided by hoteliers and state trade groups.

In Indianapolis, in particular, hotel occupancy figures have been slowly on the rise after dipping to 20% in late March and April (the downtown figure has been even worse, dropping to just over 5% in early April). Several hotels throughout Indianapolis closed their doors temporarily to cope with the virus.

California is expected to lose out on the most tax dollars, at about $1.9 billion. It’s followed by New York and Florida ($1.3 billion each), Nevada ($1.1 billion), and Texas ($940 million).

The association’s release of the study comes as the lobbying group angles for additional aid to the industry from Congress. Its effort includes calls for funding to help hotels rehire—and retain—employees and keep their doors open.

The virus led to the layoff or furlough of an estimated 70% of hospitality workers throughout the U.S. In 2019, the nation’s hospitality industry generated about $660 billion in gross domestic product and $40 billion in tax revenue.

Chip Rogers, president & CEO of the association, said in written remarks that COVID-19 was a record setback for the industry.

“Getting our economy back on track starts with supporting the hotel industry and helping them regain their footing,” he said. “However, with the impact to the travel sector nine times worse than 9/11, hotels need support to keep our doors open and retain employees as we work toward recovery. We expect it will be years before demand returns to peak 2019 levels.”