The court of appeal agrees with the hotel sector, ruling that Auckland council’s contentious accommodation tax is invalid.

The Accommodation Providers’ Targeted Rate (APTR), one of Auckland mayor Phil Goff’s first budget initiatives after taking office in 2016, was introduced in 2017 to help cover about $29 million of annual spending to attract visitors to the city. 

Up until last year the tax, which charged commercial accommodation providers on the capital value of their property, generated about half of that, used by the city’s economic and cultural agency Auckland Unlimited to drive tourism initiatives.

Hoteliers and accommodation providers have fought the so-called 'bed tax' as unfair since its inception, suggesting it loads up a small select group and receives little in the way of return. The 140-member Hotel Council Aotearoa (HCA) suggests the Auckland hotel sector receives about 9 cents out of every dollar spent by visitors.

In 2018 a group of accommodation ratepayers took the Auckland council to high court citing “unreasonableness” of the rate and seeking a judicial review. The council spent $1.2m defending that challenge, and the high court dismissed the case in February last year.

This April, hotel groups Millennium & Copthorne Hotels (MCK), MLC Scenic, T&T Clarry’s Holdings and CP Group took the council to appeal court on the high court decision.

In its judgment yesterday, the court of appeal noted there was "virtually no assessment" from the council on benefits to the targeted group, an "error of law" going to the heart of the decision.

Implications for businesses

HCA strategic director James Doolan said the ruling was significant for its hotel members and overnight accommodation providers.

Doolan said there were also implications for other business sectors “since it addresses what should be taken into account when local authorities impose new targeted rates on industry subsectors“.

Pre-covid, the New Zealand tourism industry generated about $3.9 billion annually in GST revenue. Doolan said it contributed another $3.1b in tourism-related taxes such as PAYE, profits tax and excise taxes.

He said domestic and international tourists, the latter representing about 20% of the overall tourism market, already “paid their way” through the 15% goods and services tax (GST). He said GST was already higher than the total sales plus bed taxes paid in almost all comparable destinations – Australia charges GST of 10% and doesn’t have a bed tax. 

Noting that the tourism infrastructure funding is a complex one, Doolan said he has sympathy for the council's funding constraints but the APTR was "clearly a poor response".

“Any new funding regime must draw upon international best-practice and robust research. Tourism is an internationally competitive undertaking. The fundamental tourism funding problem has not changed in the four years since the APTR was introduced,” Doolan said.

Millennium & Copthorne (MCK) chief executive Boo Chiu said the group was pleased with the decision, which found the fundamental issue was a lack of “direct benefit” to hoteliers and accommodation providers. 

He said as the implementation of the court of appeal decision will require a further hearing in the high court, the hotel group isn’t yet able to assess whether the impacts of the decision will be material to its 2021 results.

Its two major Auckland hotels, the M Social and Grand Millennium, are being used for managed isolation and quarantine services by the government, and the group also operates the Copthorne Hotel in the city. MCK owns or operates 19 hotels across the country.

The APTR is currently deferred to next June as a covid relief measure by the council and Chiu said he expects the suspension to “become permanent” in view of yesterday’s decision.

The mayor's office has been approached for comment.