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Use of hotel tax exemptions have collections plunging

CHARLESTON, W.Va. -- Hotel-motel tax collections are plunging in some localities because of unanticipated uses of exemptions allowed under the law, legislators were advised Monday.

Legislation allowing localities to impose occupancy taxes on hotel and motel rooms was enacted in 1975, with a maximum rate of 3 percent of the room charge. In 2005, the law was amended to allow a tax rate of up to 6 percent.

While the revenue has been a boon to cities, allowing them to construct and maintain civic centers, auditoriums, parks and other tourist attractions, some localities are seeing a sharp drop in hotel-motel tax collections because of two exemptions in the law:

  • The tax is not collected on rooms provided to guests at no charge. That was not an issue until recently, when the state's racetrack casinos -- particularly the two in the Northern Panhandle -- made a huge upsurge in offering "comped" rooms to attract gamblers.
  • The tax is not collected on stays of 30 days or longer -- an exemption that Lisa Dooley, with the West Virginia Municipal League, said was put in the original law so legislators would not owe the tax while staying in Charleston for legislative sessions.
  • Now, energy companies are taking advantage of the 30-day exception for lodging for employees working on drilling sites in the northern half of the state.

    Some municipalities affected by the Marcellus Shale drilling boom are seeing hotel-motel tax collections dropping by nearly 50 percent, she said.

    "That's where the cities are having an issue, and having a reduction in their revenue," Dooley told a Finance legislative interim committee.

    She cited the town of Pleasant Valley, Marion County, which saw its hotel-motel tax collections drop from $11,000 to $6,000 in six months, because the three motels in town are filled largely with energy company employees.

    The Municipal League is pushing to revise the 30-day exemption to apply only to state employees conducting official state business.

    Hancock County Commissioner Danny Greathouse said his county is also losing hotel-motel revenue because of the 30-day exemption.

    "I know some hotels where roughly 35 percent of the rooms are taken by people with the 30-day exemption," he said.

    However, Greathouse said the county's big beef is with the exemption for comped rooms, noting that Mountaineer Racetrack and Casino in the county has started comping 50,000 to 60,000 room-nights a year in hopes of competing with new casinos in Pennsylvania and Ohio.

    On any given night, more than half of the resort's 300 hotel rooms are available free of charge to gamblers.

    John Cavacini, with the West Virginia Racing Association, said the comped rooms are the only incentive the Northern Panhandle casinos can offer to attract Pennsylvania and Ohio residents.

    Under state law, the West Virginia racetrack casinos were required to build on-site luxury hotels -- amenities that the competing Ohio and Pennsylvania casinos lack.

    "We use the comp system primarily to entice people to come and drive 40, 50 or 100 miles, and bypass casinos in their hometowns," he told interim committee members. "That is really the only advantage we have, to offer comped rooms."

    Greathouse said he has no objection to the casinos comping rooms, but believes the law should be changed so that they would have to pay the appropriate amount of hotel-motel taxes on those rooms.

    Reach Phil Kabler at philk@wvgazette.com or 304-348-1220.


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