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Tax Revenue Impacts and
Marketing Northern Minnesota’s
Iron Trail
Jim Skurla, Bill Fleischman, Mike Mageau
Bureau of Business and Economic Research
UMD School of Business and Economics
Grand Rapids, MN
May 12, 2003
In this presentation
About the project
Background
 Deliverables

Summary
Social Impact
 Economic Impact
 Environmental Impact
 Benefits to communities

See report, p. 4
About the project

Background
To further the discussion of a possible new tax on food,
beverage and hotel/motel facilities in the ten
communities served by the Iron Trail,
the UMD Bureau of Business and Economic Research
(BBER) was asked to estimate the impact of these
proposed taxes
for purposes of planning to expand tourism in the
region
Research Question
Who pays what tax, and who benefits?
See report, p. 4, 5, 6
About the project
Deliverables
Report estimated fiscal, social, and
environmental impacts of users within
the Iron Trail region.
Report estimated tax revenue
earnings from a general sales tax, an
excise tax on hotels, motels, and eating
and drinking places, and an excise tax
on eating and drinking places only.
See report, p. 4
Social Impacts



Summary
Impacts vary according to stakeholder group
and tax option.
Table 1 presents primary impacts associated
with proposed changes in the tax on food and
beverage, lodging, and/or retail expenditures
Stakeholders include





Area Residents
Area Businesses
Pleasure Visitors
Business Visitors
Other Communities
See report, p. 7, 8
Social Impacts
Summary
Residents and visitors:

Costs are incurred by local residents and visitors who make purchases in the
tax categories.
Businesses:

There are virtually no costs to the businesses that provide the services or
facilities that would generate the tax revenue.
Communities:

Benefits from tax revenue for marketing the target area amenities would be
distributed and would benefit communities
Local residents:

Local residents benefit indirectly from the proposed tax, and benefit from the
possibility of some increased employment
Visitors:

Visitors would bear the brunt of the increased cost in lodging, while local
residents would provide a larger portion of the increase in the revenue
generated by an increase in food/beverage and retail sales tax.
See report, p. 7, 8
Economic Impacts
Measurement steps:
1)
2)
3)
4)
Summary
Develop an estimation of the possible impacts
of an advertising campaign in the region
Develop inputs to the model including:
Capacity Assumptions; Iron Trail Tax Ratios;
Iron Trail Tourism Assumptions; Sector
Breakdown of New Visitor Expenditures
Given the above inputs, impacts are
estimated and reported by the model:
Employment, Output, and Value Added
Tax revenue earnings are computed from
economic impacts
See report, p. 12, 13
Economic Impacts
Summary
Medium range (of high, medium and low estimates):
Eating & Drinking
Employment
90
Output
$3,011,658
Eating & Drinking + Lodging
Employment
104
Output
$3,479,075
Retail
Employment
363
Output
$12,149,541
Source: medium range inquiry-to-visitor rate from Iron Trail Convention and Visitors Bureau; IMPLAN
See report, p. 22
Environmental Impacts
Summary
Measurement steps:
1)
Environmental impacts of increased economic activity
in the ten communities were analyzed using an inputoutput system
2)
Environmental impacts (externalized costs) were
estimated
3)
Economic impact data generated by IMPLAN is
translated into environmental damages expressed in
monetary terms
4)
1st step: estimation of a damage function–the
environmental stress per dollar’s worth of economic
activity
5)
2nd step: increases in environmental stress are
converted to monetary values
6)
Quantify the magnitude of damages
See report, p. 22
Environmental Impacts
Summary
Medium range (of high, medium and low estimates):
Eating & Drinking
Output
$59,759
Eating & Drinking + Lodging
Output
$68,998
Retail
Output
$241,077
Source: medium range inquiry-to-visitor rate from Iron Trail Convention and Visitors Bureau; IMPLAN;
BBER; Economic Input-Output: Life Cycle Assessment (EIO-LCA) method devised by H. Scott
Matthews and Lester B. Lave at Carnegie Mellon University; ISF
See report, p. 24
Benefits to the communities
can include:

Increased profit, larger revenue stream

Increased employment


Increased investment in services, facilities
and/or product lines.
Increased quality of options for local
residents.
See report, p. 4
Benefits to the communities
can include:
Increase of funds spent on local projects
 Lodging tax on visitors not locals
 Additional economic activity flowing to
community businesses
 Possible compensation from sharing of
environmental costs from businesses who
receive most of the economic benefits

See report, p. 4

For more information
Bureau of Business and Economic Research
19 School of Business and Economics
University of Minnesota Duluth
10 University Drive
Duluth, MN 55812-2496
Phone (218) 726-8730
Fax 218 726-6555
E-mail [email protected]
See also http://www.d.umn.edu/sbe/departments/bber/
See report, p. 4