Tourism Marketing Plan Poses Taxing Question

After nearly a year of arm-twisting and wrangling, California’s tourism industry has devised a formula to tax itself to fund tourism marketing--the first such travel-related assessment in the nation.

Under the plan, which will be made public this week, California businesses that profit from tourism will be asked to approve a levy of 4.5 cents for every $100 of their revenue from tourism, in an effort to raise $7.5 million for tourism promotion. More than 250,000 California businesses are expected to participate in the referendum to be held early next year.

Industry officials are hailing the public-private initiative as a way to boost the state’s modest tourism marketing budget without burdening taxpayers in order to stem California’s sliding share of the global travel market.

But opponents, including the powerful airline industry, are already lining up to fight what they see as just another tax that could ultimately inflate the cost of travel for consumers.

“Our position is firm that we are opposed to mandatory tourism assessment fees,” said Roger Cohen of the Air Transport Assn. in Washington. “We believe this program should work strictly on a voluntary basis.”

The California Tourism Marketing Act, which became law Jan. 1, 1996, set up a mechanism for state officials to conduct a referendum asking businesses that benefit substantially from travel and tourism to finance a marketing program to lure more visitors to California. Tourism is a $55-billion business in California that employs 658,000 workers. With an estimated 280 million tourist visits last year, California is by far the nation’s most visited state.

Still, California has attracted an ever smaller slice of the overall tourism market in recent years as travelers have begun flocking to heavily promoted destinations such as Las Vegas, Orlando and Branson, Mo. Last year, California’s share of the U.S. domestic leisure travel market was 10.9%, down from 12.5% in 1989.

With a state tourism marketing budget of just over $7 million in 1995, California ranks 21st in overall spending and 48th in per capita outlays for tourism marketing and promotion, according to state figures.

State and industry officials have long agreed that more money should be devoted to promoting and developing this key sector of California’s economy. But there has been little agreement on who should pay or how the funds should be spent.

The Tourism Marketing Act established a committee of private sector executives and state tourism officials that has been meeting over the past year to figure that out. The committee’s report proposes a system that would be administered and enforced with the help of state law.

The report specifies more than 200 types of businesses that potentially could be assessed as part of the Marketing Act. They include obvious travel-related firms such as hotels, restaurants, theme parks and transportation firms, and the not-so-obvious such as bookstores, hobby shops and computer retailers in popular tourist areas.

Although more than 250,000 companies will be polled by mail as part of the referendum, any business that derives less than 8% of its revenue from travel and tourism in California would be exempt from the annual assessment. Likewise, companies owing nominal amounts--the number is still being worked out--would be exempt since the collection costs would exceed the fees collected.

Although the state plans to audit for compliance, companies are basically on the honor system to accurately report their tourism-related revenue and to calculate the amount, if any, that they would owe if the referendum is approved.

The assessment would be capped at $250,000 annually for a single business location and $300,000 annually for any business entity as a whole. The ballots will be weighted, meaning the vote of a company whose assessment works out to $900 a year would count three times as much as the vote of a company assessed at $300.

“It’s a matter of fairness,” said John Poimiroo, director of the California Division of Tourism. “Each business will have a vote based on what they would have to pay.”

Poimiroo said most of the ballots will be mailed by April and the results should be available by June. State law mandates that all businesses receiving a form must fill out the financial information and return it to the state, though officials acknowledge that isn’t likely.

True enforcement will begin if the initiative is approved. The Franchise Tax Board would be responsible for collecting the mandatory assessment. Scofflaws would be subject to fines and imprisonment.

Although state tourism officials have held 20 public meetings across the state to build support for the industry assessment, and the initiative is backed by influential players such as the Walt Disney Co., passage is by no means assured.

Operators such as Allan Ansdell Jr., president of Adventure City in Stanton, question how much a nationally oriented advertising campaign would benefit small businesses like his.

Additionally, Ansdell worries that mere compliance with the survey will cost him plenty, regardless of whether he ends up paying an assessment. Ansdell says he has no reliable breakdown on how many of his customers are locals and how many are defined as “tourists” under the Marketing Act.

“The only way I could do it is by putting an employee at the gate and doing an extensive survey,” he said. “That’s money out of my pocket that I can’t afford to spend.”

Major airlines have been particularly critical of the proposed assessment, charging that it violates federal laws prohibiting state and local governments from slapping taxes on air travel.

Additionally, national carriers such as Southwest Airlines are concerned that if California were to succeed, other states would follow suit.