Have you ever looked at your hotel charges and wondered why there is a tax charge? Even more, have you considered why the tax might be high or low? It helps to understand how and why there is a charge and how it is calculated based on the city you are visiting.
Understanding Philadelphia Tax Charges
Philadelphia is known to have some of the highest tax rates in the United States. Property and business taxes are no exception. The expenses to maintain historical properties, such as hotels and national monuments bear the burden of constant renovations and high taxation.
The hotel tax in Philadelphia is levied by a 6 percent sales tax and an 8.5 percent city surcharge making it half a percent more expensive than visiting Boston or Cambridge, Massachusetts. In contrast, to stay one night in the costly capital city of London in the United Kingdom, you would pay 20 percent hotel tax.
Why Is Hotel Levy So High?
Philadelphia, Pennsylvania is the second oldest city in the United States and has many historic sites, buildings, museums, and hotels to specially care for future generations. The Liberty Bell Center, The Betsy Ross House, Independent National Historic Park, the Benjamin Franklin House, the Museum of the American Revolution, Independence Hall, and many other cultural heritage sites require bespoke and expensive care.
For example, Italy is a much older country than the European settled United States. They have ancient Etruscan, Roman, Venetian, Florentine treasures such as property, hotels, artwork, and museums to maintain. The city of Venice requires hundreds of millions of Euros each year to provide tourists an opportunity to visit this amazing city.
It is no different for the birthplace of the American spirit. Philadelphia is a jewel in Lady Liberty’s crown. The high taxes you pay to visit the City of Brotherly Love helps local businesses keep their doors open and their facilities up to a high standard of historical accuracy and functionality. These historical treasures cost money to preserve.
How Historic American Hotels Fund Property Preservation
Certainly, the dependable flow of guests and returning visitors help American historical hotels help improve the return on their investment in operating and maintaining a piece of history. However, if there is an older element that needs to be protected like electric and plumbing systems, they will require expert technicians and hard to find components or replacements for the broken items. Basically, if you run a historic hotel or historical site, maintaining it can quickly eat into your profits.
To help ease this burden the federal, state, and local governments of Philadelphia have put into place a series of tax strategies that may help lift the burden of maintaining our nations’ cultural heritage from the pockets of local businesses and dispersing it among the tax payer to ensure these structures remain in place for future generations to appreciate.
Tax Strategies for Hotel Renovations
The Pew Charitable Trust Foundation discovered that Philadelphia offers more than $200 in tax breaks for local businesses. In fact, since 2002, there have been many tax reduction incentives and exemptions added to the books. As of printing, there are 21 tax reduction measures for local businesses.
These breaks were put in place to relieve some of the cost of doing business in the City of Brotherly Love. Philadelphia’s Finance Manager, Rob Debow believes that in order to attract business there is a need for compensation. This is certainly the case for business owners who have the dual responsibility of being a historical caretaker and the operator of a business.
Evaluating property and assets before a large renewal, renovation or construction project is one strategy for reducing the tax liability of a historical business. For instance, the review of a historical property like a hotel could free up cash flow by shortening the lives of assets causing an increase in the depreciation expenses and the amount of tax is reduced accordingly.
The examination of actual property assets can recognize real personal belongings lowering the life span classification to a selection of items. Including five, seven, and 15 years for tax accounting letting the property value incurs a lessened fee. This lowers the hotelier’s most recent income tax obligations. As the lives of assets are decreased, depreciation costs are accelerated leaving reduced tax payments which allow the hotelier to put in that rainfall shower that guests can enjoy during their next visit to a Philadelphia hotel for example.
What Are Real Property Assets?
Real Property Assets Include:
- A hotel’s non-structural characteristics
- Exterior grounds improvements
- Peripheral construction fees
- Reclassified assets such as cabinetry, fireplaces, crown molding
- Decorative millwork
- Lighting and other forms of special electrical systems
- Flooring, both historical and precious, i.e. marble
- Wall coverings, including preserved woodwork, tapestries, and paintings
- Plumbing with an emphasis on preserved, historical components
- Outdoor assets features like cobblestone paving
- Precious fencing, decorative landscaping, mature foliage and trees
- Outer areas directly related to hotel expenses
There is a lot of personal property inside hotel rooms that can be included in the review of actual property assets to reduce tax liability for the hotelier. Think about everything provided to you when you check into a hotel:
- Big comfortable bed with high thread count sheets, goose down blankets and pillows.
- Antique bedside tables
- Electric devices like lamps, televisions, alarm clocks, kettle, hair dryers, safes, irons
- Desks, chest of drawers, couches, crystal glassware, porcelain mugs
- Wall art and other decorative items
The depreciation of these items due to usage may help lower the hoteliers’ tax bill allowing them to maintain the integrity of the historical aspects of their hotel while continuing to operate a successful business which offers a needed service for the visitors who come to explore the history of the United States’ birth. Think about if there weren’t any hotels in Philadelphia, or anywhere for that matter. Travel would be a lot more difficult.
The prime opportunity to decrease the lives of assets is during the remodeling or expansion of a property. The fees incurred from a remodel may be eligible for a brief depreciable life, if it is reclassified as having already been incurred instead of changing the assets classification after the remodel or expansion has finished.
Marky Moore founder of the Capital Review Group, which is a national full-service specialized tax consulting firm, notes that buildings remodeled, expanded or constructed before 1987 let the taxpayers charge against depreciation values for previously unrecognized costs, which can also encourage liquid assets to increase in the present year.
Breaks For Hoteliers, Hotel Tax for Visitors
The tax breakdown sounds like a lot but, it is worth knowing what the money you are paying when you book your next hotel, is doing. If you return to the example of preserving the vast historical riches of Italy, specifically the dream metropolis of Venice where the nature of history and its’ extensive needs for preservation are quite pronounced, it is easier to see why a tax would be higher in Venice.
This is true for Philadelphia too, visitors can take in just as much history and beauty as they do in older European cities, but the city and its monuments also require financial upkeep. Hopefully, when you visit the city, you will enjoy it more knowing that you are certainly helping preserve what you see as you enjoy the city’s accommodations.