Question

A western U.S. state is quite popular with tourists, hosting about 6 million visitors per year. The state’s director of sales and use taxes has recently advised the governor that a special 5 percent hotel and motel rooms tax should be added to the present 4 percent use tax, making a 9 percent total rooms tax. Currently, the state’s budget is in the red. Thus, an increase in revenue is badly needed. What economic advice should the governor seek?

Answer 1

I belive the main source of income for this stage is from Tourism, based on this assumption I would like to state the following advice:

As the existing tax rate is getting increased by 125%, surely the taxes collected will also increase. But due to the increase in taxes, there might be loss in revenues and tourists so the increase or taxes will not be around 125%, it should be around 75-80% at a safe estimate.

Before implementqtion seek the advice and feedback from hotel and industry key officials and then move forward, If required come up with counter measures to make the effecting industries delightful with special benefits