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Tourism bureau reluctantly backs Chicago tax hike on hotels

Hotel taxes

Chicago’s hotel tax, which would rise to 16.4 percent under a proposal from Mayor Rahm Emanuel, is not the highest in the nation, but it’s more than the charge levied by principal competitors.

In Las Vegas, the hotel tax is 12 percent but the sales tax is also 12 percent, higher than Chicago’s 9 percent, said the Chicago Convention and Tourism Bureau. The bureau said Orlando collects 12.5 percent on hotel bills and a sales tax of 6.5 percent.

Both cities try to woo business from Chicago’s McCormick Place.

Updated: November 16, 2011 2:10PM



Chicago’s tourism business is strong enough to bear an increase in the city’s hotel tax and the revenue will be used to attract more visitors, Mayor Rahm Emanuel said Wednesday.

Emanuel’s 2012 city budget calls for $14 million from an increase in the city’s tax on hotel stays. He said the money will be used to support annual events that have been under budgetary pressure, such as Taste of Chicago.

Emanuel’s budget includes a 1 percentage point hike in the city’s hotel tax, from 3.5 percent to 4.5 percent. The total hotel tax, including levies by other governments, would increase a full point to 16.4 percent.

The mayor said about $1 million of the added revenue will be used to promote McCormick Place.

The president of the Chicago Convention and Tourism Bureau, Don Welsh, reluctantly backed the tax increase. He said he hopes the money will help the city get more shows that draw visitors who stay multiple nights.

Emanuel said next year’s planned Chicago summits for NATO and the G8 countries will lift hotel occupancies and tourism during 2012. He said the average tax hike would be $1.78 per night of a hotel visit, which he said would not deter business.

In an interview with the Sun-Times’ editorial board, the mayor noted that hotels will benefit from his decision to cut the head tax in half. Emanuel said the $4-per-month per-employee tax on companies, which he proposes to halve for 2012 and eliminate by the end of his term, is a “tax on job creation.”

He also said former Mayor Richard Daley’s last increase in the hotel tax didn’t chase away business. Occupancies rose after the 2005 increase.

“So there’s a value proposition here and I think that based on that, it’s the right thing to do,” Emanuel said. Some of the tax hike will be spent to support the hotels “and I’m also giving them a tax cut,” he said.

Welsh criticized the mayor’s office, however, for not discussing the tax plan with his group. The bureau’s board is dominated by business leaders who back the mayor.

“There is a very strong feeling that communications just broke down,” Welsh said.

The chairman of the bureau’s board is Bruce Rauner, principal of the private equity firm GTCR LLC. When Emanuel was an investment banker, they collaborated on a business deal that helped make Emanuel wealthy.

“I know a number of people at the convention bureau” and discussed the tax increase with some, Emanuel said. Rauner did not return a call.

The convention industry is involved in a fight with trade unions over labor reforms that affect the costs of staging shows at McCormick Place. Industry leaders said large shows are holding off on new commitments to Chicago while the labor matter is unsettled, and a tax increase adds to the city’s image as a high-cost host for conventions.

“We’re competing with Las Vegas, Orlando and other cities. We already have the highest hotel tax among all the cities we compete with. This makes it even higher. It’ll just make it more of a challenge to attract and retain conventions,” said Marc Gordon, president of the Illinois Hotel and Lodging Association.

Welsh said Chicago has been at a plateau of about 39 million visitors a year but that he believes the number can grow to 44 million with better promotion outside the Midwest.

Chicago’s hotel industry is on track to post modest improvement in its business this year vs. 2010, Welsh said. He said average occupancies should be about 70 percent this year, with average rates of about $170 a night.

Chicago’s hotel tax, which would rise to 16.4 percent under a proposal from Mayor Rahm Emanuel, is not the highest in the nation, but it’s more than the charge levied by principal competitors.

In Las Vegas, the hotel tax is 12 percent but the sales tax is also 12 percent, higher than Chicago’s 9 percent, said the Chicago Convention and Tourism Bureau. The bureau said Orlando collects 12.5 percent on hotel bills and a sales tax of 6.5 percent.

Both cities use comparisons of costs and labor rules to try to woo business from Chicago’s McCormick Place.

The bureau said that in New York, the hotel tax is 14.75 percent plus a charge of up $3.50 per day, while the sales tax is 8.9 percent.

It also found that the U.S. cities with the highest hotel taxes include Houston and Indianapolis at 17 percent and San Antonio at 16.75 percent.



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