The rate elasticity of Florida tourist development (aka bed) taxes

Abstract

One aspect of taxation in Florida is unique in that state policymakers have created several different tourist development taxes, generally allowing local governments to adopt up to four of these ad valorem levies (which can total 5%) on transient rentals. The rentals include, but are not limited to, hotel stays. In this article, we estimate the elasticity of this local tax base with respect to the rate for Florida counties with rate changes between 1998 and 2012. Results indicate several significant and large short-term declines from periodic county-level increases in the tax rate, but no significant long-term effects.

Keywords:

• public finance
• business tax
• sales tax
• tax elasticity
• tourism

JEL Classification:

• H2
• H25
• H30
• L83

Notes

¹ The final partial derivative can be further separated into two components: for the effect on the price to the seller and the effect of the increase itself, but we do not find this separation to be useful.

² This tax is not available to policymakers in Miami-Dade and Volusia counties, but the Florida legislature has authorized and the communities have levied unique taxes that are not available elsewhere.

³ This intent is similar to that of South Carolina as described in Litvin et al. (2006).

⁴ The rate in 2012 actually exceeded 5% in the following counties: Miami-Dade, Duval (Jacksonville), Orange (Orlando), Osceola (Kissimmee) and Volusia (Daytona Beach). These areas are able to levy either a ‘Special High Tourism Impact Tax’ or some other special levy (Florida Legislature Office of Economic and Demographic Research, 2012).

⁵ Walton county also had a 0.5% change in the general sales tax in 2009. See Table A1 in the Appendix.

⁶ ‘Intervention’ is a term coined by Box and Tiao (1975) to refer to an event in time series that can be incorporated into a model through the use of dummy variables.

⁷ We did not attempt to measure any potential discrepancy in the properties of the tax base time series before and after the tax change.

⁸ See Enders (1995) for a more detail presentation of intervention models.

⁹ See results in Table A2 in the Appendix.

¹⁰ Results for all counties appear in Table A3 in the Appendix.

¹¹ Thus, Mr Rosen’s concerns were not unfounded.

¹² We found very week negative effects in Volusia county as a result of the first tax rate change in Orange county (January 2003), and in Bay county, after the first tax rate change in Walton county (February 1999). A similar result was obtained for Okaloosa county in response to the second change in the tax rate in Walton county (May 2004).