The Hotel Tax: Part 1


It’s been a highly contested subject since County Mayor Ernest Burgess proposed it. And with the City of Murfreesboro considering the same, a proposed hotel tax increase has become a complicated mess. At stake here are many things: county budgeting needs, city budgeting needs, jobs, ability of businesses to compete locally, and the tourist industry. In Part One of a two part series, we look at how the hotel tax is defined and where Rutherford County and Murfreesboro presently fit into the state overall picture.

Is Sales Tax Considered Hotel Tax ?

Lodging tax laws in Tennessee,  are complicated by distinctions made among local governments and geographic areas. Tennessee’s hotel laws vary, but all hotel guests in Tennessee pay a 9.75 % state and local sales taxes and in most places a county lodging tax, a city lodging tax, or both. In Rutherford County that present rate is 2.5% county and 2.5% city , for a total of 5%. So the “Combined Tax” is 14.75%.

Tennessee is one of the states who has not granted general authority to levy local lodging taxes. Instead, the General Assembly has authorized certain types of local governments and individual counties and cities to levy them at certain rates, generally 5% county and 5% city for a total of 10%. (SOURCE)

Hotel owners and those against the tax argue that the 9.75 % rate “counts” toward the hotel tax, and the “combined” 19.75% would hinder their ability to be competitive with their area counterparts. More on that in a bit.

Tax Hike Would Lead To Largest Percentage In State

According to the US Census Bureau’s 2012 Economic Census, more than half of all lodging establishments in Tennessee are in ten locations: Nashville-Davidson, Memphis, Pigeon Forge, Chattanooga, Gatlinburg, Knoxville, Clarksville, Jackson, Murfreesboro, and Sevierville. The combined tax rate on lodging in these cities ranges from 12.75% to 17.25%, with an average of 14.75%. A comparison with the top five lodging markets in each of Tennessee’s eight neighboring states finds that total tax rates in those areas range from 6.475% to 17.5%, with an average rate of 13.2%.(SOURCE). If both county and city approve this tax increase their combined rate would be 19.75% .The largest in the state and the largest in the region.

combined taxes

Does Hotel Tax Hike Effect Business?

There’s a big study (56 pages) done in 2015 , on the State of Tennessee site that discusses different scenarios . Some are a little dated for my taste, but the biggest similarity in each study, whether it showed effect or no effect, was the difference of “destination” or “in distance of destination”.

In most of the studies, destination areas were not effected or minimally effected by rate increases. Consumers were likely to ignore the increase, or search for cheaper options farther away. It appears through the studies that the “outward effect” would be more hotels built in Smyrna, La Vergne , Eagleville, etc. where they is only going to be a 2.5% increase.

The biggest thing I took away, simply put: Is Rutherford County a destination area, or is Rutherford County an affordable county next to destination Nashville? Does Murfreesboro share the same vision of what it is,or is becoming, as Rutherford County does? Does the tourism industry perceive Murfreesboro as a “destination area” ?  These are all factors that I am sure or officials will be looking at as the argument moves forward.

We want your opinion, and we’ll forward to Mayor Burgess on Monday:
[poll id=”3″]

Monday, we’ll look at why both sides feel the need for the tax increase, and what happened in Thursday’s joint meeting.


    • Sorry for the delay, but I did get an answer from Doubletree Hotels:
      All Sporting Events pay the Hotel Occupancy tax. They are not tax exempt.
      Teams that play Middle Tennessee State University (TN Board of Regents) may be state sales tax exempt. They are not exempt from the Hotel Occupancy Tax-Now 5% to County and 2.5% to City

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