There’s no such thing as a free lunch. Or a tax without side effects. The Mission Viejo City Council should contemplate that before its July 9 meeting, when it will consider putting a tax increase on lodgings before voters in the Nov. 5 election. 

Called a transient occupancy tax, it’s collected on hotels, motels and homes rented from such apps as Airbnb and Vrbo. A TOT is attractive because it falls on tourists, not the locals. As the Register reported, the current TOT is 8%, the lowest in Orange County. If voters approved, the levy would jump by half, to 12%. That would make it the fourth highest, and well above the average among OC cities of 10.4%.

“We are not saying, ‘Let’s jack up the price on people;’ we are saying, ‘Let’s meet the market where everyone else is at,’” said Councilmember Brian Goodell. 

But 12% is above 10.4%.

“Some studies have shown cities with a higher TOT compared to adjacent cities had a disadvantage and their hotels lost business to the hotels of the adjacent city,” Raymond Sfeir told us; he’s the director of the A. Gary Anderson Center for Economic Research at Chapman University. He said sales also dropped at adjacent businesses, causing a reduction in sales tax collections.

Related Articles

One such study was from 2018 by Clay Collins of the University of Georgia and E. Stephenson of Berry College, “Taxing the Travelers: A Note on Hotel Tax Incidence.” It found a $5 TOT increase imposed in Georgia in 2015 caused both a decrease in occupancy and in “the net of tax price received by hotels in Georgia, though the latter effect is imprecisely estimated.”

Then there’s a 2020 study by Abhinav Sharma, et al., of Virginia Tech, “The Effect of Lodging Taxes on the Performance of US Hotels.” It found a high TOT especially affected bookings by groups, because they “can more easily choose a different destination.”

The council should reject this counterproductive tax increase. Instead of being an excuse to increase the tax, enjoying the lowest TOT in OC ought to be Mission Viejo’s brand.