Lawsuit Challenges Forced Payments for Tourism Bureaus

A decades-old law paved the way for quasi-governmental bodies to tax private businesses and then use the money to entice tourists to the area. A business owner who objects to the practice has recently filed a lawsuit in the matter.

“The Tourism mafia,” as George Galbraith calls the local tourism bureau, has cost him an estimated $5,000 a year in revenues. Galbraith owns The Landings on Indian River, which offers tourists cabin rentals and a marina in Indian River, Michigan, a small community in Cheboygan County.

A 1980 law called the Community Convention or Tourism Marketing Act laid the legal framework for regional nonprofit tourism bureaus such as the Indian River Area Tourism Bureau. The bureau charges a 5 percent tax on each room, collecting $35,000 annually. The money appears to fund only the maintenance of a website, which lists nine lodgings, as well as information about local activities and attractions.

Critics of the tourism act say that in the age of the internet and social media, it’s wrong to force private businesses to pay fees, also called assessments, to the bureaus so they can advertise on behalf of regional tourism.

“The internet does so much more for us at a fraction of the cost,” Galbraith said, noting that Facebook is his best way to draw tourists. “I can spend $100 on Facebook and get 100 times the response than the tourist bureau does all year.”

The bureau's marketing report for the 2015-16 fiscal year, obtained by Michigan Capitol Confidential, says the bureau's mission is “to establish a community organization to promote the public to visit Indian River and enjoy our friendly community and lavation area.” The report notes that the bureau promotes Indian River throughout the Midwest, “using tv, newspapers, vacation shows, printed material, travel magazines, and radio.”

Galbraith said he knows the Indian River bureau's marketing isn’t working because the coupons it places in magazines are not being used.

Documents provided to Michigan Capitol Confidential do not show specific examples of the bureau's marketing strategy.

Galbraith fought against the bureau, to no avail. Seven of nine motels and lodgings covered by the bureau were given a vote on a marketing program referendum. Only Galbraith and Nancy Smith, owner of the Woodlands Resort, voted against the referendum, which included the five percent tax.

“Why should I pay someone to represent me when I don’t want their representation?” Galbraith asked.

Votes for the referendum were due by June 26, 2015, and taxes could be collected as early as Aug. 1, 2015. Since the proposed tax was levied on a per-room basis, each motel’s owner was given one vote per room. Galbraith had 17 votes against the referendum since his business has 17 cabins, while Smith had 18 votes for Woodlands Resort. Hometown Inn, with 49 rooms, voted in favor of the referendum. Those votes, combined with those of other businesses, gave owners favoring the 5 percent tax a 102-35 supermajority.

A Mackinac Center study found that the state’s tourism promotion is an ineffective economic development tool. As its authors characterized the findings in a story for Michigan Capitol Confidential, "for every $1 million in additional spending by a state on tourism promotion, there was an associated increase of $20,000 in additional economic activity shared by the entire accommodations industry in that state.”

The Mackinac Center Legal Foundation will file a lawsuit and challenge the state’s regional tourism tax for rental rooms on behalf of Galbraith.

“This case involves a challenge to corporate welfare practices which tax businesses to pay for a program that might or might not benefit them,” Derk Wilcox, a senior attorney for the foundation, said. “The creation of these quasi-governmental entities with the ability to impose costs on people are ever-increasing.”

Wilcox also believes tourism bureau tax “is compelled speech of the kind that the United States Supreme Court has disallowed.”

“These assessments make it costlier for tourists to come to Michigan, but don’t necessarily create any benefit,” he added.

Alan Thompson, president of the IRTB and owner of Topinabee Motel, one of the seven motels that voted in the referendum, did not respond to a request for comment. Records show Thompson voted in favor of the referendum.