April 6, 2009 - Despite protests from some in the hotel business, a 1 percentage point increase in the Indianapolis hotel tax would be unlikely to ruin the city's reputation as a low-cost host for conventions and other events.

So say one of the largest hotel owners in the city and an event planner who point out that even with the proposed increase, the city's hotel rates and related costs still would undercut most cities that Indianapolis competes against.

The increase would help bail out the city's ailing sports board.

"It's not just going to be the tax rate (meeting planners) look at. When you add the tax on top of it, our room rates are still going to be lower" than those of competing cities, said Dave Sibley, chief executive of Merrillville-based White Lodging, which operates three Downtown hotels and is co-developing the 1,626-room JW Marriott hotel complex next to the Indiana Convention Center.

Indianapolis' average daily hotel room rate of $82 is lower than that of most major Midwestern cities, including Columbus, Ohio ($84), Louisville, Ky. ($90), Nashville, Tenn. ($93), and Chicago ($102), according to STR Global and HotelNewsNow.com. Only St. Louis is lower, with a rate of $80.

In addition to low room rates, Sibley said, Indianapolis benefits from a compact Downtown that doesn't require visitors to pay for taxis or shuttles to get from their hotels to the convention center or Downtown attractions. That's an advantage over cities with spread-out downtowns or remote convention centers, such as Chicago.

Even so, the proposed tax hike would make Indianapolis' hotel rooms among the most-taxed in the nation.

If the room tax rises from 9 percent to 10 percent, and the state sales tax is set at 7 percent, Indianapolis' total room tax would jump to 17 percent. The tax paid on that average-priced $82 room would jump by 82 cents to $13.94.

"Any time you are at the highest point in the country, your competition's going to try to use it against us," said Phil Ray, general manager of the Omni Severin Hotel and president of the Greater Indianapolis Hotel Lodging Association. "There's a potential it could work against us."

The state legislature is debating increasing the room tax and other taxes to help the Capital Improvement Board offset a projected $47 million deficit next year. The problem is in part fueled by higher-than-projected operating costs for Lucas Oil Stadium, which opened last year. The increase in the room tax would raise an estimated $4 million a year.

Sibley said it's critical for the city's convention business that the stadium and expanding convention center are adequately supported. "That to me is a much bigger problem than swallowing another 1 percent on the hotel tax," he said.

Alexander deHilster, a principal of the Chicago event planning company ADH Events, called Indianapolis' hotel tax rate high but said, "Just because it's 17 percent doesn't mean you're out of the running" for convention business.

He said taxes are just one of many costs that convention sponsors look at in assessing a convention site. Other expenses include prices for audio-visual equipment, the cost of bringing in speakers and the expense of gratuities.

Still, Don Welsh, chief executive of the Indianapolis Convention & Visitors Association, said hotels and restaurants are being asked to bear too much of the burden in the proposed CIB bailout.

"We always go back to the well of hotels and food and beverage," he said. "Somehow we need to spread the involvement."

Jeffrey Brown, the chief executive of Schahet Hotels in Indianapolis, said he'd like to see the legislature raise revenue for the CIB by taxing Downtown retail businesses or shifting some state sales tax revenues to the CIB.

Brown said it's also unfair to slap the same room tax on all hotels in Marion County, because Downtown hotels get more business by being near Lucas Oil Stadium and the convention center than suburban hotels do. Thanks to the room tax, he said, some of his seven Indianapolis hotels are at a price disadvantage competing against Hamilton County hotels, where the room tax is 5 percent.

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