Legislature approves hotel-motel tax cap and spending restrictions for tourism funding

The Tennessee Senate State and Local Government Committee convened on April 1, 2025, to discuss a significant bill concerning hotel-motel taxes. The proposed legislation aims to streamline the process for local governments to adjust their hotel-motel tax rates without needing separate legislative approval for each change.

Key features of the bill include a new cap of 8% on hotel-motel taxes, which local governments can impose. Additionally, it limits any single increase to no more than 4 cents at a time. This means that if a county already has a hotel-motel tax of 5%, it could only raise it to a maximum of 8% by increasing it by 3 cents, rather than the full allowable increase of 4 cents.

The bill also addresses concerns from the hospitality industry regarding the allocation of tax revenues. It specifies that the funds collected from these taxes must be used for tourism-related purposes, ensuring that the tax serves its intended function of supporting the tourism sector.

During the meeting, committee members expressed gratitude for the inclusion of amendments that reflect the hospitality industry's needs. However, some municipalities voiced concerns about the cap, preferring no limit on tax increases. The bill's sponsor acknowledged these concerns but emphasized the necessity of a cap to prevent excessively high tax rates, which could exceed 20% when combined with other local taxes.

The committee voted in favor of the amendment, with all members present supporting the bill. This legislation is expected to provide clarity and stability for local governments while balancing the interests of the hospitality industry and taxpayers. Further discussions and votes will determine the bill's final passage in the legislature.