Week in Insights: Tourist Taxes Must Reconcile Conflicting Goals

New Zealand’s decision to nearly triple its tourist tax has pitted the environment against those who see tourism as vital to the country’s economy. And its approach will serve as a test case for how other destination states can manage competing priorities.

The International Visitor Conservation and Tourism Levy, which will rise from NZ$35 ($22) to NZ$100 on Oct. 1, is earmarked to support infrastructure and preserve the very environment that draws visitors. However, the hike raises concerns over its potential to deter tourists and harm New Zealand’s post-Covid 19 recovery.

Travel to New Zealand is already expensive due to its remoteness from places such as the US and the UK. Although visitor arrivals have been trending upward, they haven’t returned to pre-Covid 19 numbers. Critics argue the tax hike could make New Zealand less competitive—especially given that other destination countries, such as Sweden, have cut taxes on travel-related expenses.

New Zealand’s predicament highlights the delicate challenge of finding the Pareto optimal tax rate for tourism—the point at which the government would maximize revenue.

Striking this balance is vital but challenging, as it can be difficult for opposing sides of the argument to agree on what counts as a loss and how (or if) it can be assigned a value. Environmentalists would argue that environmental degradation should be avoided at all costs, so any such harm couldn’t be justified by tax revenue increases.

Tourism advocates might argue that raising related taxes could result in fewer visitors and be a net negative for the economy. If other countries continue to encourage travel by scrapping related taxes, New Zealand could find itself taxing fewer travelers at a higher rate just to maintain existing tax revenue levels.

New Zealand’s government should account for the broader impact of tourism on the environment and the economy. An ideal policy would generate sufficient revenue while limiting environmental strain and supporting sustainable tourism. This means the policy should consider both immediate economic benefits and long-term sustainability.

The optimal tax rate for revenue purposes might overlap with what’s best for the environment, but only if the government values both properly.

—Andrew Leahey

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined New York state’s retroactive tax regulations, tax insurance’s transfer pricing benefits, and more.

The Exchange—It’s where great ideas on tax and accounting intersect.

—Curated by Daniel Xu

Insights

Yale University’s Aneesh Raghunandan says real-world examples help students relate and that thinking outside the box may help garner more interest in the accounting field.

RSM’s Robert Zonenshein critiques retroactive tax regulations in New York state, urging businesses to consider proactive steps to address risk.

Dentons’ Linda Pfatteicher, Rezan Ökten, and Davy Schoorl share how tax insurance benefits businesses, saying it’s important to use experienced advisers for favorable terms.

University of Richmond’s Robert Pawlewicz discusses accounting’s future, saying that tax programs and business schools are adapting to the new landscape.

PKF Littlejohn’s Farhan Azeem explains African initiatives on transfer pricing in the natural resources sector to increase scrutiny and regulation, and considers issues for multinationals operating in the sector.

Columnist Corner

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

Google’s agreement with California to commit $172.5 million to journalism and AI initiatives is unlikely to make a lasting impact, Andrew Leahey says in his latest Technically Speaking column, adding that the contributions’ tax deductibility could undermine their benefits to revenue.

Lawmakers should consider a tax on user and third-party data instead, as it “would allow equitable and progressive rates of taxation, revenue distribution, and a reduction of power imbalances between states and large tech companies,” Andrew argues. Read More

News Roundup

Berkshire Tax Case Lays Path for Other States to Follow Nebraska

The Nebraska Supreme Court’s ruling in a tax case involving a Berkshire Hathaway Inc. subsidiary shakes the justification behind other states’ decisions not to tax income from multinationals’ foreign affiliates. Read More

Big Business Ponders Global Tax Strategy as 2025 Cliff Nears

Corporate America is grappling with how to approach competing US and global minimum tax policies ahead of a Capitol Hill tax battle next year. Read More

ConocoPhillips Quietly Settles Louisiana Profit-Shifting Lawsuit

The Louisiana Department of Revenue confidentially settled a major tax lawsuit against ConocoPhillips Co., but declined to reveal whether the oil and gas giant paid any of the estimated $700 million in back taxes, penalties, and interest the state initially sought. Read More

States Try ‘Boot Camps’ to Address Tax and Audit Staff Shortages

New kinds of workers are finding their way into state government financial agencies hungry for talent after staffing blows from the pandemic and a wave of retirements. Read More

Tax Management Memorandum

In the aftermath of a much-referenced IRS Chief Counsel Advice, Moritt Hock & Hamroff’s Michael Borger analyzes the legal landscape and sets forth key planning considerations in structuring a trust decanting to achieve client objectives tax-efficiently.

Instead of deferring to the Department of Labor, post-Chevron courts may interpret ERISA themselves—and some already have—on regulatory matters relating to the fiduciary rule, ESG investing, and more, Evelyn Haralampu of Burns & Levinson notes.

Career Moves

Elizabeth Crouse joined Holland & Knight as a partner in its energy and tax practices in Portland.

William Bromley joined Fox Rothschild as counsel in its taxation and wealth planning department in Palm Beach, Fla.

Jason Graham joined Baker Botts as a partner in its tax department in Dallas.

Ligeia Donis joined Baker McKenzie as a partner in its tax practice in Washington.

If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.