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Report: Local tourism taxes lack oversight and could be replaced by a statewide rate

DEAD: Zombie taxes that are no longer authorized by state law were still collected in Byhalia, Southaven and Horn Lake. Photo illustration by Steve Wilson

A legislative watchdog committee says local entities that decide where tourism tax revenues are spent likely need more oversight and that the Legislature should consider changing the way it authorizes these taxes.

There are 82 of these taxes being collected and 88 in effect statewide, with 74 of them in municipalities and 14 of them in counties.

The report by the Joint Legislative Committee on Performance Evaluation and Expenditure Review says the Legislature could choose to pass a general law that allows local governments to levy tourism taxes or could authorize a uniform general tax for the support of communities. Often, these taxes differ in amounts and what is taxes, such as hotel stays or meals at restaurants or both.

As for oversight, the report says that the state auditor has the authority to make sure tourism tax revenues are spent appropriately, but that 31 of these taxes are administered by a separate entity, such as a tourism board, that would require a separate audit.

PEER members also said in their report that there was a lack of metrics statewide on whether these taxes are effective in promoting tourism development.

Collections by the Mississippi Department of Revenue for local tourism taxes have increased 164 percent since 2004. Cities and counties brought in more than $37 million in tourism tax revenue in 2004. Fast forward to 2017 and cities and counties collected more than $95 million in tourism tax revenue. According to the latest DOR data, the 82 tourism taxes in effect now have earned more than $98 million for fiscal 2018, which ended June 30.

Right now, the procedure for the authorization of these taxes requires legislative action in the form of a local and private bill. Local and private bills usually benefit a city or county in a legislator's district and are one of the last chores the Legislature wraps up before leaving town at session's end.

Once that bill is passed, a referendum is required in the taxing community to approve the levy.

The small print for taxpayers is that while many of the taxes have repealer provisions that might ax the tax in three years or so, the tax can be reauthorized by the Legislature with another bill. A bill that would've required another referendum in taxing jurisdiction when a tourism tax is reauthorized was defeated this session.

The report also says that many local governments kept collecting the tax even after the law that authorized it expired. It cited Byhalia as an example and that having the DOR .

The north Mississippi city collected its 2 percent hotel tax after the law's expiration in July 2016, but a law passed in the 2017 session allowed the city to retroactively keep the proceeds from the expired tax.

Similar bills were passed and signed into law by Gov. Phil Bryant this session that did the same for Southaven and Horn Lake that not only reauthorized their expired taxes, but allowed both cities to retroactively keep the proceeds.

The report says cities might not be collecting all that they can from these levies. According to data from the DOR, three percent of all businesses are audited for sales tax compliance and of those audited, only 15 percent were found to be in compliance.

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