Indian River Lawsuit Over Room Tax Has Implications for Ludington Area

[XLFD]

Back in 2011, an obscure Michigan law from 1980 meant to allow areas to pool their money and market their area for tourism was put into action on April Fool's Day.  Just prior to this the local paper and our own member Aquaman, noted that they had announced a room tax for all lodging facilities in the county.  Immediately, all reservations for short-term rentals were subject to an assessment fee of 5 percent. It affected all rental arrangements on May 1, 2011. 

The assessments went to the Ludington Area Convention & Visitors Bureau, to be used to market the Ludington area.  None of the various lodging facilities had direct input as to how the money would be used, LACVB President Barry Neal told us, noting that on average it would be less than $3 per room per night, and he added:  "It enables us as a community to market the Ludington area in a much more effective, measurable way.".

Since then, you may remember the LACVB investing heavily in Historyprize (a failed effort), supplying glossy brochures throughout the community and beyond with the Love Ludington motif, and advertising Ludington events on billboards in far away places.

While some of these measures may have a measurable effect in getting more visitors to, and interested in, Ludington, it has come at a big cost to many of our area's lodgers.  Consider, if you have 100 rooms, at $100 each with 100% occupancy in for the 100 days of summer break (between Memorial Day and Labor Day weekends), you need to pay this 'assessment' for the tourist season:  $50,000. 

Now if you were like many of our lodging facilities, that 100% figure for occupancy wasn't far off the mark for the summer even before the '5% room tax' was levied , so why invest $50,000 in extra marketing that isn't needed?  

Near Midland, Michigan, George Galbraith has been forced to pay a 5 percent tax on each cottage he rents at his riverfront resort, The Landings on Indian River.  The Indian River Area Tourist Bureau, like the LACVB, levies a tax on rented rooms in the area and uses the money to promote tourism in the region.

“The Landings on Indian River has been around for decades and its success has never been the result of a state-created tourism bureau’s website,” Galbraith (pictured below) said. “We had guests traveling here from all over the country before there was any local tourism bureau, and they’ll keep coming long after it’s gone. “No one should tell individuals how to run their businesses or their advertising.”.

The United States Supreme Court has held that a person may not be forced to subsidize speech against his or her will, regardless of the message. Courts have consistently found that governments may not grant independent entities like the Indian River Tourism Board the power to compel business owners to subsidize commercial speech unless their industry is effectively controlled by the government through massive regulation or subsidies.

The suit alleges that the state law authorizing the Indian River board is unconstitutional for the same reason. Organizations that fund themselves through room taxes, including the Indian River one, do so under the Community Convention or Tourism Marketing Act. 

The Landings is one of seven businesses forced to pay room taxes to the bureau. Galbraith was one of two business owners who voted in 2015 against imposing the tax. The bureau’s primary method of encouraging tourism in the area is operating a website.

“In the era of social media, I can and do promote my business more effectively and efficiently than the Indian River Area Tourist Bureau does,” Galbraith said.

The case was filed in the State of Michigan Court of Claims and names the Indian River Area Tourist Bureau and Steve Arwood, president of the Michigan Strategic Fund, which approves actions taken under the Community Convention or Tourism Marketing Act, as defendants. The suit seeks a declaration that the tax is unconstitutional, as well as nominal damages.

If ultimately successful, the Ludington Area CVB's 'room tax' would likely go away shortly thereafter, at least for those who wish to leave it.  The Ludington Torch, a freedom focused organization ran without levying a tax and without actively seeking donations, wishes Mr. Galbraith and other liberty-loving innkeepers the best of luck in seeking justice.

Related documents: Complaint and Mackinack Center Press Release

[MED]

I wonder if you use the "sharing" sites like AirBnb to get your clients if you still must pay the tax?

I also wonder about these people who just vote YES on any and all taxes. I don't get them at all. So wiling to hand over money to ineffective, greedy, government entities. And often, as we have seen just from the Ludington government, they don't spend the money on what the tax was supposed to cover.

I applaud George Galbraith, is there a website somewhere that I can contribute to his cause?

[XLFD]

I am sure George Galbraith would be satisfied for himself if you just came over to stay in one of his cottages and mentioned your full support.  As you may have noticed, the Mackinack Center, a conservative think tank organization, is involved and they are supplying him legal services much like the ACLU does often for more liberal causes.  I am sure they would welcome donations to offset their costs, here is their donate page.

Those who do vote for such quasi-taxes are undoubtedly misled by the 'quasi-taxing authority' into believing that they would get more bang for their buck.  A minority do; the ones that have friends/relatives/themselves in the authority.  Personally as a consumer, I want each private entity lodger to compete with each other and do their own marketing, this gives a much better deal to me, and rewards those lodgers who can give good product at good value.  

[Willy]

I always thought the fee was voluntary and was assessed to motels that were members of CVB.

[XLFD]

Act 395 of 1980 used terms like "assessment district" and "municipality" to define the extent of the 'room tax' area.  It can be as big as a county or something small, like all the motels on one side of a lake.  Fees are mandated for every lodger in that district, even if they vote against the original levy.

At Indian River, they lumped seven lodging facilities together, possibly due to geography, possible due to the ability to pass such a tax successfully.  Let's say, for example, the plaintiff Galbraith had a very successful business with minimum expenses for marketing.  He and anybody else in similar circumstances wouldn't need the 'room tax', it would just be an unnecessary expense that would do him no favors. 

Conversely, those with less successful businesses would get a bump if the marketing campaigns were of any success, which shouldn't be difficult with all the money that can be generated.  These people could be convinced to vote for the 'room tax'.  Effectively, the successful are subsidizing marketing for those who aren't that successful.  This is contrary to the free market principles of competition, Galbraith is helping his competitors market their business.  If you like increased costs of service and aimless committees trying to prove their worth by making redundant, fancy websites, you'll love this socialism experiment.