Bizarre: US Virgin Islands Plans to Increase Hotel Taxes, Give the Extra Money Back to Hotels

The Governor of the U.S. Virgin Islands announced a plan to re-open the Frenchman’s Reef & Morning Star Marriott Beach Resort and along with it a government plan to increase hotel taxes from 12.5% to 17.5% — the highest in the United States and the highest in the Caribbean.

In contrast Hawaii’s hotel taxes are 13.25%, St. Maarten’s 5%, and Puerto Rico’s 9%.

The governor describes higher taxes as an “economic recovery fee.” And the extra 5% will be given back to the hotels, plus interest.

Which sounds to me like it’s just a price increase, guests pay more money and the money goes to the hotels. Except here the price increase is being enforced across the board by the government, so no hotel can undercut others seeking to raise prices, with the added layer of hotels sending the money to the government and then the government sending it back perhaps not in equal proportions or to the same hotels that paid in.


Credit: Frenchman’s Reef & Morning Star Marriott Beach Resort

The governor claims the revenue is to help rebuild from the 2017 hurricane, but payments will only be made into the fund from actual occupancy. And of course properties would generally have had insurance, payments from which would be funding reconstruction. Moreover if it’s worth rebuilding, based on the net present value of expected future income streams, financing would seem possible as well (or selling to someone else who would be able to rebuild and capture those revenue streams).

And if this were really about recovery from the hurricane, wouldn’t that suggest the tax ought to exist for a limited period?

Hotels don’t usually ask for higher taxes, this one was announced in conjunction with the Marriott’s planned re-opening in two years. That should tell you something.

Bill Tennis, executive vice president of DiamondRock Hospitality, thanked Governor Mapp for his “consistent support” and confirmed the hotel will reopen during the first quarter of 2020. In addition to making the hotel’s buildings more impervious to storms, Mr. Tennis anticipates an expansion of the pools and public spaces and upgrading the Morning Star portion of the property to what he described as a “premium” resort.

“When completed this will be a very significant investment by DiamondRock in the territory,” Mr. Tennis said. “We are particularly appreciative of Governor Mapp and his team’s efforts to assist the tourism industry by introducing this legislation today.”

The new tax to provide hotels with more revenue from their guests requires approval by the legislature.

(HT: Dennis L.)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. We love the Renaissance Carombola on St Croix. No way we’re paying an extra tax to stay there on top of Marriott increasing prices anyhow. Increase tourism dollars by driving loyalists away, smart! No taxes will get generated if we’re not there to spend it.

  2. Two thoughts:

    1) I wonder if this is designed to help the bankrupt Virgin Islands government with its finances. Presently, they use their expected tax collection revenue as collateral for borrowing money through bonds. Now they can tell lenders they have more money in the bank even though purportedly some of that money is dedicated to hotel owners.

    2) This is just dumb because the Virgin Islands is mostly a cruise ship destination. There is very little overnight tourism. The product the Virgin Islands offers just isn’t competitive with other beach or island destinations — whether in the Caribbean, North Atlantic, Pacific, or the Gulf of Mexico. If I could save 15% per night by going elsewhere and having a better time, I would.

  3. Economically, this is monopoly pricing imposed by the government. It is wholly anti consumer. Consumers should take their custom elsewhere in the Caribbean in protest.

  4. This is a bad decision, especially coming so close on the heels of the sin tax. Tourism is already down. Instead he should be trying to rebuild tourism and try to get flight costs down. Up the volume of overnight visitors and up the revenue all around.

  5. Really. Talk about taxation without representation. Does any if these people remember the Boston tea party? What is going to happen is Airbnb is going to make a killing there now and off market rentals are going to be the norm. Boats and ships will now rent outpaces too.

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