Room Occupancy Tax
By Matt Brazier

MILLIONS OF DOLLARS ARE COLLECTED EVERY YEAR TO KEEP THE TOURISTS COMING. FIND OUT HOW THE MONEY IS REALLY SPENT.

On a pleasant Sunday evening in Carolina Beach, 800 people settle into their beach chairs to enjoy a free movie by the lake. Duke Hagestrom, the perpetually busy owner of Wheel Fun Rentals, is there but he’s hardly relaxing. The movies were his brainchild and he’s everywhere tonight making sure the show goes off without a hitch. By his estimation, 2/3 of the people are out-of-towners stuffing parking meters, buying dinners and ice creams and enjoying a cocktail before the show. “The movies and fireworks series have been so successful”, he says earnestly “ I still can’t believe we had to practically beg the Town Council for the money to do it.”

While it seems pretty generous of the Town to pony up the $40,000 needed to put on the fireworks (every Thursday night all summer) and movies, it just so happens that this money comes from the tourists themselves. When they rent a room they pay a tax called a Room Occupancy Tax (ROT), and part of this money goes to fund events like free movies, free concerts at Fort Fisher and the Thursday night fireworks. Carolina Beach collected almost a million dollars in ROT’s last year. Where does this money go?

The money is designated for beach nourishment and marketing to keep the tourists coming back. This is mostly, but not exactly, how the money is spent. Like the social security trust fund or The North Carolina “Education” Lottery, these things don’t always pan out as expected. Ultimately, politicians spend the money the way they want. To understand fully, a Room Occupancy Tax primer is necessary.

A 3% ROT has been in effect for every hotel, motel or lodging facility in New Hanover County since 1983. This means that if you rent a room for the night, or a house for the week, in addition to the 7% sales tax you also paid a 3% tax that the county collects to create a fund that could be used to ensure that more tourists keep coming. The law is specific about how the money should be spent: 60% to be put in a fund for beach nourishment and the other 40% to be spent promoting tourism and travel in New Hanover County.

In 2002 a law was passed allowing the beach towns to levy an additional 3% ROT to be used for out-of-town marketing and tourism related expenditures. Carolina Beach and Wrightsville Beach adopted the tax in 2003 and Kure Beach followed suit in 2004. A similar law was passed in 2001 adopting a 3% ROT for the City of Wilmington to be used to help fund a convention center. So now you pay a total tax of 13% on any lodging facility in New Hanover County.

The law also created the Tourism Development Authority (TDA), a seventeen-member board that approves all spending of ROT money, and the Cape Fear Coast Convention and Visitors Bureau (CVB), which is the team of paid professionals that work on the marketing and promotions. The TDA consists of all four mayors, a county commissioner, the CEO of the CVB, the county finance director, and ten other appointees representing hotels and hospitality businesses. These groups are directly involved in helping the beach towns develop programs to attract and keep visitors.

Of the 6% ROT that the beaches collect, the first 3% still goes to beach nourishment and promoting tourism in the county as a whole. The second 3% is used specifically for the town that collected it. 1-1/2% is used for out-of-county marketing. The CVB works closely with a Tourism and Marketing Committee from the town to develop a strategy. Maybe a billboard in Raleigh, an ad campaign in Charlotte, a website or brochures. Of course, the TDA has to approve all expenditures.

The last 1-1/2% is used for tourism related expenditures, for instance, a free movie, concert or fireworks. The county finance department keeps a running tab on how much a town has in their fund. The TDA meets every other month. At these meetings the town councils can request money for a tourism-related expense. Once again, it’s at the TDA’s discretion to approve the funds.

It didn’t take long for the beach towns to develop a budget trick to make this whole process much simpler. They asked for every penny in the fund to be used to pay for lifeguards. The cost of providing lifeguards is greater than the amount of money brought in by the ROT, so the towns only need to make one big request instead of asking the TDA for money to cover every expense. Who can argue that providing lifeguards isn’t a tourism-related expense? Never mind that the towns have been paying for lifeguards all along.

And so, one more well-meaning piece of legislation isn’t used quite as planned. One has to believe that the framers of the law expected the money to be spent on new programs, not something they’ve been funding for years. Certainly their goal wasn’t to supply the towns with just another revenue source. They wanted funds to directly support projects and events that would keep tourists coming to the area. In fact, when Carolina Beach initially asked the TDA for funding for the outdoor movies, it was praised as exactly the type of program they had envisioned.

Of course, our beach towns do sponsor a lot of tourism-related activities and expenses (and they have for years). Carolina Beach maintains far more parks than a comparably sized town, provides manpower and money to help with events like the Seafood, Blues and Jazz Festival and maintains the beach. Kure Beach provides free parking throughout town, funds the free concerts in Fort Fisher and keeps their beach nice and clean

An argument can be made that the process is working just as it should. Each town decides what is worth spending money on as they see fit, only now the tourists pitch in whether they know it or not.
 

Return to the August 2006 Issue of Snow's Cut Monthly