St. Thomas merchants say government’s reliance on visitor fees threatens long-term competitiveness
STT News Staff
As cruise ships continue to arrive at Charlotte Amalie harbor in record numbers this winter season, a growing coalition of local business owners is questioning whether the territorial government’s aggressive taxation of tourism is ultimately harming the very industry it depends upon.
The criticism comes as the V.I. Department of Tourism, local hotels, and retail establishments face mounting pressure from increased operating costs, while government officials defend their tax structure as necessary for maintaining public services and infrastructure.
What started as informal conversations among hoteliers and restaurant owners has evolved into organized concern. Several business leaders, speaking on condition of anonymity due to fear of government retaliation, told STT News they worry the territory’s combined visitor taxes—including the 8 percent accommodations tax, cruise passenger fees, and various licensing requirements—are pricing St. Thomas out of the regional tourism market.
“We’re competitive with Puerto Rico, Jamaica, and the Bahamas, but that margin is shrinking,” said one hotel general manager who spoke with STT News on the condition of anonymity. “When you add up everything a visitor experiences here—from the ferry surcharge to restaurant taxes to parking—we’re becoming the expensive choice.”
The concern reflects a delicate economic reality for the U.S. Virgin Islands. Tourism accounts for approximately 70 percent of the territory’s GDP and employs roughly one-third of the workforce. Yet the government has limited revenue sources compared to the states, making it heavily dependent on visitor-related taxes to fund schools, hospitals, public safety, and infrastructure.
The debate intensified in recent weeks following conversations at the St. Thomas Chamber of Commerce and at informal gatherings of business owners along Main Street in Charlotte Amalie. While no formal survey has been conducted, interviews with nearly a dozen business operators—ranging from boutique hotels to restaurants to watersports companies—reveal consistent concerns about the tax environment.
“The government sees tourism as an ATM machine,” said Marcus Williams, owner of a Charlotte Amalie restaurant that caters to both locals and visitors. “But if you squeeze too hard, the machine breaks. We’re already seeing booking patterns shift. People are going elsewhere.”
The territorial government’s position, articulated through spokespersons for the Department of Tourism and the Office of the Governor, emphasizes that visitor taxes fund critical infrastructure and services. Officials note that St. Thomas has invested heavily in port facilities, road improvements, and public amenities designed specifically to enhance the visitor experience.
“The taxes we collect allow us to maintain the beaches, police the streets, and provide the services that make St. Thomas attractive,” a Department of Tourism spokesperson said in a written statement to STT News. “We understand business concerns, but we also have a responsibility to provide essential services that benefit residents and visitors alike.”
The conversation reflects broader economic challenges facing the territory. The USVI has experienced sluggish job growth outside of tourism, limited manufacturing, and ongoing population decline as residents seek opportunities elsewhere. The government’s reliance on visitor revenue has intensified since the 2008 financial crisis and the subsequent closure of the Hovensa refinery, which once provided substantial tax revenue and employment.
Yet the current tax debate also reveals divisions within the business community itself. Some larger resort operators and established businesses told STT News they have adapted to the tax environment and view the fees as a necessary cost of doing business. They worry that public debate about taxes could discourage potential visitors or investors.
“Complaining about taxes in public just makes us look unstable,” said one hotel owner. “People want to bring money here. We should welcome that, not fight over how to divide it.”
That perspective contrasts sharply with smaller business operators who say they lack the profit margins of larger establishments and are more vulnerable to pricing themselves out of the market.
The timing of this discussion coincides with peak cruise season, when thousands of visitors arrive daily via ships anchored in the harbor. Recent data from the St. Thomas Port Authority shows cruise passenger arrivals have rebounded strongly since the COVID-19 pandemic, though still below pre-pandemic peaks.
However, cruise passengers typically spend less per capita than stay-over visitors, meaning increased cruise traffic does not proportionally increase tax revenue or necessarily benefit smaller businesses. This dynamic has prompted some business owners to question whether current taxation policies are optimized for long-term prosperity.
“We need a strategy that attracts the right kind of tourism,” said Diane Santos, owner of a boutique retail shop near Magens Bay. “We’re getting volume but not necessarily value. That’s a structural problem that taxes alone won’t solve.”
Tourism industry experts reached by STT News noted that destination competitiveness involves multiple factors beyond taxation. Infrastructure quality, safety perception, airline connections, and brand positioning all influence visitor decisions. St. Thomas faces competition from Caribbean destinations offering similar experiences with different tax structures.
The conversation is likely to intensify as the government faces pressure to maintain revenue while confronting criticism from both business interests and residents frustrated by government service delivery. The governor’s office has indicated openness to discussing business climate issues, though no formal review of tourism tax policy has been announced.
For now, St. Thomas stands at a crossroads. The territory’s economic future depends heavily on maintaining tourism competitiveness while ensuring government has resources to serve residents and maintain the infrastructure that makes the islands attractive in the first place. Whether local leaders can find that balance remains uncertain.
Industry analysts point to the broader Caribbean tourism landscape as context for understanding St. Thomas’s position. While the territory’s combined visitor tax burden sits above the regional average, neighboring destinations face their own fiscal challenges that complicate direct comparisons. Puerto Rico’s extensive tourism incentive programs come with conditions that not all businesses can meet, while the British Virgin Islands’s lower tax rates are offset by higher operating costs and more limited airlift capacity.
“You cannot look at taxes in isolation,” said Dr. Vanessa Moorehead, an economist at the University of the Virgin Islands who has studied tourism economics across the Caribbean. “The total cost of doing business — labor, utilities, shipping, insurance, and compliance — determines competitiveness far more than any single tax. St. Thomas has advantages in its airlift connections, its cruise infrastructure, and its brand recognition that partially offset the tax burden.”
Still, small business owners say those macro-level advantages provide little comfort when they are struggling to meet payroll. Restaurant owner James Petersen, who operates two establishments in Red Hook, said his combined government fees and taxes increased by nearly 22 percent over the past three years while his revenue grew by just 8 percent. “At some point the math stops working,” he said. “You can’t keep squeezing the people who create the jobs and the visitor experiences and expect everything to be fine.”
The chamber of commerce has proposed a series of reforms including graduated accommodation taxes that would reduce rates for smaller properties, a temporary moratorium on new licensing fees, and the creation of a tourism industry advisory council with formal input into government fiscal policy. Governor’s office spokesperson Maria Santos said the administration “welcomes constructive dialogue” but cautioned that revenue decisions must balance competing priorities including education, healthcare, public safety, and infrastructure maintenance.
As the peak season winds down, attention will shift to the summer months when many tourism-dependent businesses experience their leanest period. Several business owners told STT News they plan to use the off-season to organize more formally, with at least one group exploring the creation of a small business political action committee to advocate for policy changes in the next legislative session.
