Business Guests Will Find New Jersey Hotels Taxing

New Jersey's first-ever, statewide occupancy tax of 7 percent, which became effective Aug. 1, has diminished its hotels' significant cost advantage over neighboring New York City properties. The tax has stirred debate between the administration of Gov. James McGreevey, which promoted the measure as a way of generating much needed revenue, and lodging industry representatives, who fear a drop in bookings.

Yet, New Jersey still enjoys a considerable cost differential when compared with New York City, where occupancy tax—which was amended June 1—is 13.625 percent. In addition, a $2 per night surcharge is added to NYC hotel bills. Further, sales taxes amount to 6 percent in New Jersey and 8.625 percent in New York City.

In proposing the New Jersey occupancy tax, McGreevey cited a $5 billion state budget deficit. "By any definition, a deficit of this size is a crisis," he said. The tax provision, which was enacted into law on July 1 for the 2004 fiscal year, stipulated that the majority of the revenue raised—expected to be $112 million—be directed to general state revenues. The remainder, approximately $28 million, is to be divided among the state's arts council, office of travel and tourism promotion and other related entities.

Four New Jersey municipalities—Atlantic City, Jersey City, Newark and Wildwood—already had hotel occupancy taxes. In these cases, the state will receive taxes ranging from 1 percent to 3.15 percent. Garden State hoteliers have not responded well to the tax, according to Joseph Simonetta, executive vice president of the New Jersey Hotel and Lodging Association. "We appealed to the governor, letting him know that this was an industry that was on shaky ground, still trying to recover from September 11th and that the occupancy tax would be harmful," he said.

In something of a compromise, McGreevey agreed to direct some of the money toward travel and tourism promotion. "That wasn't part of the original thinking at all," Simonetta said. "The original plan was for an across-the-board tax that would go strictly to state, county and municipal budgets."

As for the tax's long-term effects: "Corporations now are going to have to look at their decision to travel to New Jersey," said Richard Goldberg, president of the Commerce and Industry Association of New Jersey. "Especially for companies that send their people out for stays of a week or two, they're going to have to start looking at their bottom lines more closely. Suddenly, travel managers' budgets are going to be off by 7 percent."

Efforts to enact a statewide tax had been made before but were repelled. "For many years, we were successful in putting off these kinds of proposals, rallying people around how this really would harm the travel industry," Goldberg said. "This year, the momentum was too great. The legislature was going to impose a tax on some sector, and the hotel industry appeared to be a weak link. Basically, they positioned the tax by claiming that it would hurt travelers from out-of-state more than in-state people."

New Jersey hoteliers had conflicted feelings about the new tax. "We certainly support the state in its efforts to remain solvent and successful," said Richard Verruni, general manager of the 187-room Hotel Westminster in Livingston, "but we're extremely concerned that adding a tax of this magnitude makes us look like a less attractive value."

Simonetta expressed the hope that the extra funding for travel promotion would be used to reinforce whatever competitive advantage the state has left. Efforts should target New York City especially, he said. "Hopefully, with the extra marketing dollars, we'll be able to make a persuasive case for the cities along the Hudson River waterfront, in particular, as an alternative to New York, where the taxes are still higher," he said, "and New Jersey still is cost effective in other ways. We may not have the great advantage we had before, but it's still an advantage."