Increased Travel Taxes
Published: May 2009
By Jim Glab
Travelers are paying 20 percent more in taxes than in 1994—and the figure is still rising.
How much does it cost to rent a car advertised at $29 a day?At U.S. airports, on average, $35 a day.
The extra six bucks goes, not to the rental company, but to the city, county, and/or state government, the airport authority, or some other local quasi-governmental office — basically, any body with taxing powers.
You might think you already pay heavy levies, but once you leave home your taxes really add up. The Travel Industry Association estimates that travelers shell out $71 billion annually in taxes, and that's just in this country.
Things are no better overseas. On a five-day trip abroad, you can expect to pay an average of $124 in hotel, restaurant, rental car, and airport tariffs, according to the World Travel & Tourism Tax Policy Center. Its 52-city study determined that the taxes for that five-day trip range from $13.36 (Istanbul) to $297.04 (Copenhagen).
And the situation keeps getting worse. According to the Tax Policy Center, the average travel tax bite in its 52-city index has increased 20.8 percent since 1994, as travel-related taxes were raised in 43 of the destinations. The International Chamber of Commerce, which tracks air-travel taxes, says that in 1997 it found 1,087 instances of surcharges on airline tickets around the world, compared with 650 just five years earlier.
Travel suppliers often don't include taxes or fees in their price quotes even though paying them is mandatory. The lesson for consumers is clear: When you're getting prices, ask about taxes and other fees. And prepare to pay.
Until recently, domestic airfares always included all taxes. A few years ago, however, the federal government allowed airports to assess a "passenger facility charge" (PFC) of up to $3 per person to fund improvements; most major airports have done so. The fees, which can rise to a maximum of $12 per person on a multi-segment trip, are not mentioned in quoted fares (though they do at least benefit the traveler).
And now, part of the federal excise tax on domestic tickets may not be included, either. (In 1997, Congress passed legislation to restructure the excise tax on all tickets — which, according to the General Accounting Office, means travelers in America will pay an additional $3 billion by 2002.) Instead of the old flat tax rate of 10 percent of the fare, the tax is currently 8 percent plus a fee of $2 per flight segment. In October, the rate will change to 7.5 percent plus $2.25 per segment; the fee will continue to rise each year, up to 7.5 percent plus $3 per segment in 2002.
Airlines say they can't include the new segment fees (or the airport fees) in quoted fares because the total will vary depending on whether or not you take a nonstop flight. So on a typical two-leg round-trip domestic flight, your cost could be $20 more per ticket than advertised.
The add-ons are worse for international fliers. In late 1997, the United States quadrupled its tax on round-trip international airfares from $6 to $24. In addition, each ticket incurs a fee of $5 for customs inspections, $6 for immigration inspections, and $2 for agriculture inspections — plus up to $12 in PFC's at domestic airports, depending on how many you pass through on the way to and from your foreign destination. On top of that, you'll have to figure in the cost of the foreign government's taxes and fees.
For an idea of the potential add-ons, examine the fine print at the bottom of an ad: the Department of Transportation requires airlines to reveal the cost of these extras. For instance, an American Airlines ad promoting international fares says in tiny type that taxes and fees of "up to $88" are not included.
There are two things to watch for in researching the price of hotel rooms: taxes and service charges. Sometimes they're quoted, sometimes not. And although the small type might specify "tax and service additional," hotels are not obligated, as airlines are, to spell out the charges.
These extras can increase the bill by as much as 25 percent. Resorts in Mexico, the Caribbean, and Asia are especially known for tacking on a "service charge" in addition to the hotel tax, saying that the money is pooled and distributed to employees. In Mexico, the tax ranges from 12 to 17 percent, with a 10-to-15 percent service charge on top of that. Hotel bills in Bermuda show not only a government tax but also a mandatory daily rate for gratuities, as well as a "resort levy" of a few dollars a day. When booking, ask whether any service charges are assessed in lieu of tipping. If so, do not feel compelled to tip (unless you want to, for extraordinary service).
Most cruise lines started including "port charges" in their advertised prices in 1997. Before that, such fees — often $100 to $200 per passenger — were usually hidden in hard-to-read type. The companies made the change under pressure from Florida's attorney general, who claimed that they were inflating their port charges to cover costs other than passenger taxes and docking fees paid to ports of call. Now a few dollars in government departure tax and customs fees is likely to be the only extra you'll see buried in the fine print.
Taxes and fees on airport car rentals are complicated by a number of add-ons. In the United States, rental companies start with a basic sales tax. In addition, they often must pay a concession fee to the airport, which varies depending on whether they have counter space in the terminal or merely pick up customers there. These costs are passed on to travelers. Many cities also tack on a surcharge of a dollar for each day or rental, or a fixed percentage.
The highest rental taxes in the TIA study were in Seattle, where your bill will include total taxes of 28.3 percent if you rent from a company with service counters in the terminal, or 22.3 percent if you rent outside the airport. Other top taxers (on in-airport operators): Las Vegas, 23 percent; Minneapolis, 24.2 percent; Phoenix, 23.8 percent plus $2.50 per rental; New Orleans, 23.75 percent.
Don't look for any breaks in Europe. Pick up a car at the Brussels airport and you'll get hit with a whopping 34 percent tax (21 percent value-added tax plus a 13 percent airport surcharge). At the Vienna airport, your total tax is 33 percent — plus about 60 cents a day in highway user fees. In Scandinavia, airport rentals incur VAT rates ranging from 22 to 25 percent, plus surcharges of about $13 to $20 per rental.