Sales Tax Slice: Second ‘Trump Slump’ Likely to Further Impact State Sales Tax Revenue

 

On Feb. 28, 2017, President Donald Trump addressed Congress and alluded to a new version of his blocked Jan. 27 executive order banning persons from seven predominantly Muslim countries from entering the U.S. A second travel ban may further exacerbate what Minnesota and Washington’s lawsuit describes as a negative impact on sales tax revenue, as reported by Time.

Washington’s Motion for Temporary Restraining Order, filed before Minnesota joined the suit, claims the states would suffer harm because the order is detrimental to its economy, noting that “Washington-based travel company Expedia is incurring costs to assist its customers who are now banned from travel to the United States.” Additionally, 17 states, including Pennsylvania, Massachusetts, New York, California and Connecticut, as well as the District of Columbia, filed an amicus brief in support of Washington and Minnesota, alleging that they will suffer economic harm because “[e]very foreign student, tourist, and business visitor … contributes to [their] respective economies—through tuition and room and board payments to state schools as well as through sales tax receipts from … hotel[s], retailers, and other businesses.”

To sum it up, the states are saying that less tourism means less spending and tax revenue. In most states, foreign travelers generally pay sales tax on goods and services, including hotel and car accommodations, amusement fees, prepared food and beverages, clothing and other tangible personal property.

After the Trump administration implemented the January travel ban, the U.S. travel industry took a nose dive in the “Trump Slump,” according to the Independent. Within days of signing the order, “approximately $185 million in business [travel] bookings” were lost, according to the Global Business Travel Association. Tourism Economics, a travel advisory firm, predicts a drop of more than 6.3 million foreign tourists annually through 2018, according to The New York Times. The article also reports that New York City is anticipating a loss of “at least $600 million in sales” because of the decline in visitors. That’s a lot of t-shirts and Statue of Liberty hats.

Because the second executive order may be coming soon, the effect on state tax revenues is an issue that deserves consideration on all sides. Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will a decline in tourism affect tax revenue in your state?

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