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Tax the tourists, while you still can

Supreme Court. Public domain image, via Wikimedia Commons.

Taxing tourists, if you’re a politician, is a win-win. You get the revenue you need to provide the services your constituents demand and, in return, you get to take that revenue from people who will never, ever vote against you. Unlike other taxes, where you have to balance people’s willingness to vote for better funded public services against their unwillingness to pay for them (sorry, Clark County School District), politicians can optimize for revenue maximization. 

Why does the Reno-Sparks Convention and Visitors Authority collect a 13-13.5 percent tax on hotel stays? Why does Clark County charge similar rates? Simple: who’s going to stop them? Most local voters aren’t staying in local hotels, after all, and on the rare occasion when they do, it’s usually temporary. Consequently, hotel and gaming taxes are two of the most politically popular taxes to raise in Nevada, at least if you talk to voters instead of industry lobbyists. 

There’s just one small problem: What if tourist-targeted taxes are unconstitutional? 

This might sound unlikely at first glance, given how Nevada’s government has been historically funded. If taxing tourists is wrong, Nevada hasn’t been right since at least the Great Depression. However, the Constitution, via the Commerce Clause, implicitly prohibits states from interfering in interstate commerce — meaning, as tempting as it might be (some days) to build a wall on top of the Sierras and make California pay for it, Nevada does not actually have the right to prevent Californians from coming to Nevada to do business, nor vice-versa. Additionally, the Privileges and Immunities Clause prohibits states from applying laws against out-of-state residents that aren’t also applied to in-state residents. 

That is the argument being presented to the U.S. Supreme Court in Saban Rent-A-Car v. Arizona Department of Revenue. Maricopa County, home to America’s favorite presidentially pardoned ex-sheriff (one would think “law and order” conservatives in particular would have little patience for taxpayer-funded lawbreaking, but what do I know), had a problem. Phoenix’s sports facilities were out of date, and, as luck would have it, the Arizona Cardinals were every bit as interested in paying to upgrade them as the Oakland Los Angeles Oakland Las Vegas Paradise Raiders were to upgrade theirs (namely, not at all). Trouble is, taxpayers, at least those outside of Nevada, are getting wiser about the hazards of throwing billions of taxpayer dollars into public stadiums that have shorter shelf lives than most apartment complexes. 

No problem, thought Maricopa County. We won’t tax constituents. We’ll tax tourists instead.

With an assist from the Arizona Legislature, Maricopa County passed a tax on short-term car rentals and hotel stays, two services far more popular with out-of-state tourists than with Phoenix residents. It was, incidentally, wildly successful. By all accounts, at least three-fourths of the revenue collected by the tax collected was from out-of-state visitors. There was much rejoicing

The rejoicing stopped when Saban Rent-A-Car sued the Arizona Department of Revenue. The rejoicing turned to panic when Saban Rent-A-Car won and demanded its money back. The panic turned to muted relief when the Arizona Department of Revenue won its appeal in the Arizona Supreme Court, which brings us to where we are today. 

If the logic of using tourist-focused taxes to pay for stadiums sounds awfully familiar, it should. In a contentious special session in 2016, the rare Republican majority in both houses of the Nevada Legislature decided their last act would be the passage of two tax increases. One of those tax increases was a fairly explicit tourist-targeting tax of hotel room stays within 20 miles of what will soon become Allegiant Stadium. The plan — economically unlikely under the rosiest of predictions — was to attract Raiders fans to Las Vegas, who would then stay in Las Vegas hotels, pay the increased room tax, and thus pay for their favorite team’s stadium. 

As things stand, funding for the stadium is already shaky. Room taxes weren’t as high as originally projected through much of 2018, and, if the numbers improved, surely one of Las Vegas’ newspapers would happily trumpet them as they did during the one month when they exceeded expectations. Additionally, per the state’s agreement with the Raiders, Nevada can’t target Raiders fans for additional tax hikes. If — and, admittedly, this is a big if — the Supreme Court agrees with Saban Rent-A-Car that tourist-targeted taxes violate the Commerce Clause, it will financially capsize Nevada just by way of the billion dollar commitment to the stadium.

As for the rest of our state government’s commitments, now would be a good time to take a good, hard look at how much government we’re willing to pay for ourselves — and how much we’re willing to accept as long as tourists pick up the tab. 

David Colborne has been active in the Libertarian Party for two decades. During that time, he has blogged intermittently on his personal blog, as well as the Libertarian Party of Nevada blog, and ran for office twice as a Libertarian candidate. He serves on the Executive Committee for both his state and county Libertarian Party chapters. He is the father of two sons and an IT professional. You can follow him on Twitter @DavidColborne or email him at [email protected].

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