Controversial hotel bed tax validated by Supreme Court after lengthy legal battle

A controversial hotel bed tax introduced by the Auckland Council in 2017 has been ruled valid by New Zealand's Supreme Court.

A contentious hotel bed tax established by Auckland Council to boost tourism funding has been given the green light, after some modifications, by New Zealand’s highest court.

The Supreme Court ruling, released on Friday, determined the accommodation providers targeted rate (APTR), introduced in 2017, was reasonable and complied with the legislation in the Local Government Act 2002.

Some changes were required though as the council recognised there were some situations where it was not practicable for providers to pass on costs or doing so would result in a drop in demand, the ruling stated.

“The council had recommended modifications to the scheme specifically because of the concerns raised by the respondents and others during public consultation,” Justice Ellen France said.

The court ordered costs of $35,000 be paid to the council by the group that opposed the initiative.

Its determination is the culmination of a five-year legal battle to establish the validity of the initiative, which aimed to boost the coffers of the council’s tourism unit, Auckland Tourism, Events and Economic Development Limited (ATEED) by $13.45 million and reverse a 2021 Court of Appeal decision.

An accommodation sector group, including C P Group, Millennium & Copthorne Hotels New Zealand, MLC Scenic, and Katalyma Hotels & Hospitality (formerly T & T Clarry’s Holdings), challenged the introduction of the rate, claiming it was unreasonable.

It argued the Act required local authorities when determining sources of funding to consider in relation to financing each activity “the distribution of benefits between the community as a whole, any identifiable part of the community, and individuals”.

While the High Court dismissed the challenge, it found favour in the Court of Appeal which ruled the council had not adequately considered the distribution of benefits.

That court found analysis had been “corrupted” by the council’s erroneous and irrelevant belief accommodation providers could pass on the costs to guests and declared the targeted rate invalid.

It ruled the targeted rate had not been formulated on the basis of the statutory criteria, because the “true target” was the visitor, not the ratepayer.

In the Supreme Court, however, it was held a close correlation between the activity and the benefits received by the proposed target of the rate wasn’t required and neither was the application of the type of in-depth analysis envisaged by the respondents.

“It was open to the council to rely on statistics showing that the accommodation sector received 22 per cent of visitor expenditure,” Justice France said.

“The council’s assessment of the distribution of benefits satisfied the broad brush nature of the exercise required.”

Due to the court’s reasoning, imposing the targeted rate complied with the Act, it essentially followed that the decision was not unreasonable, Justice France said.

There was a rational connection between the rate and the benefits from ATEED’s activities given the visitor expenditure with accommodation providers and changes to the initial proposals had been made to recognise concerns raised by the accommodation providers and the benefits received by other ratepayers.

The APTR, one of about 11 targeted rates governed by Auckland Council, was suspended in 2020 due to the impact of the Covid-19 pandemic on the economy.

Auckland Council chief executive Jim Stabback welcomed the judgment saying it gave the council “clarity” to consider its future options.

“This decision fully endorses the approach taken by the council and emphasises that, provided we meet necessary process requirements, as we did here, the funding tools available to us may be used in this way.”

Auckland Council’s 10-year Budget 2021-2031 assumed that $15.1 million from the APTR and associated expenditure would be reinstated from 2023/2024.

However, the council could not consider reinstating the APTR until the Supreme Court delivered its decision on the appeal, a statement from the council said.

“The APTR cannot be reintroduced in the Annual Budget 2023/2024, which is currently being considered by the council, without further consultation.

“It could be considered as a funding option in the 2024-2034 Long Term Plan.”

Hotel Council Aotearoa (HCA), although not a party to the legal proceedings, expressed disappointment at the ruling because it effected its members across the tourism industry.

HCA strategic director James Doolan said the organisation and many of its members were currently working with Auckland Council on a new, fairer scheme to secure additional funding for the Super City’s event attraction and destination marketing work.

Doolan said the proposed new voluntary scheme, didn’t ignore the other businesses that clearly benefited from tourism.

“That’s a positive development and a signal that Auckland Council, under its new mayor and with a refreshed line-up of councillors, is more forward-thinking about tourism-related issues.

“A thriving visitor economy and high-quality hotel rooms are essential for any international-standard city such as Auckland.”

Doolan said HCA hoped in the future local authorities throughout New Zealand would be far more collaborative and reasonable when designing targeted rates.