Business and legal analysis

The purpose of this section is to determine the need for changes in the legal and business environment for tourism development to be successful. This involves a study of the business and legal environments as they relate to tourism.

Business environment

The environment for tourism business is made up of private businesses, both tourism related and non-tourism related, the public sector, and the service and civic organizations in the community.

Information needs. Three types of information are needed:

This information is vital to the development process. If organizations underestimate the present role of tourism it will affect their attitudes about the amount of effort they will put into future development. Equally, if increased development is perceived as a negative, the process of development will be slowed or stopped altogether. If the specific perceived problems of increased tourism are identified an action plan can be formulated to educate community residents if their perceptions are wrong or to ensure that problems in developing tourism are controlled. A survey of what is presently being done is necessary to determine what remains to be done. This information can be collected by means of a mail survey or through personal interviews.

Financial institutions. Of particular importance is the attitude of financial institutions toward tourism. The growth of tourism requires the availability of capital. If extensive development is envisioned, funding from outside the community may be necessary. This is a two-edged sword. On the one hand, financing is available. However, the price paid (apart from interest payments) is that control of the project is moved outside the community. Decisions are then made by those outside the community that affect those within the community. Thus, it is important to determine the extent to which the local banking community supports the growth of tourism, the extent to which it will lend financial and moral support to efforts to increase tourism, and the kinds of incentives it would give to expand tourism within the local area.

Financial incentives for tourism development include loans, loan guarantees, fiscal incentives and subsidies. Private banking institutions could be involved in giving loans. Many governments have also underwritten matching loans. The other incentives, if offered, would come from the public sector. A loan guarantee occurs when the host government co-signs or guarantees the loan. Fiscal incentives can take the form of reduced taxes on investments or income. This may also include such things as the relaxation or suspension of import or real estate taxes. In other cases, cash contributions, namely a subsidy, have been made to private businesses to encourage their development.

Such incentives should be made carefully and selectively. Too often communities have given financial incentives to businesses on the promise of future economic benefits to the community. But many times these benefits (jobs, taxes and revenue) did not materialize. Communities have to weigh carefully the up-front costs of incentives against the likely future benefits.

Legal environment

Government regulations in the US have increasingly affected all businesses, and tourism businesses are no exception. The objective here is to determine the extent to which government affects tourism development and to identify legislation that would hurt the development process. This analysis will serve to guide developers through the legal maze to the right agency, office or person to approach regarding regulations that affect the development under review. It will also point out to entrepreneurs the cost and risks involved in a developmental effort.

A framework for investigating the impact of the legal environment is suggested in Figure 8.5. This table identifies the basic categories of the legal environment that impact tourism development.

Environment and land use. In recent years, controls by the US federal government on the quality of air and water have increased significantly. Appropriate permits are necessary if the quality of the environment may be put at risk. An example concerns campgrounds or recreation facilities located near lakes or streams. Under the federal Water Pollution Control Act anyone who discharges pollutants into navigable waters must obtain approval by means of a permit from the Environmental Protection Agency or the Army Corps of Engineers. Such a permit might be necessary during the building and/or operation of a facility centering around a body of water.

Land use in many countries is controlled through a system of zoning. Zoning laws can require that certain areas be solely residential, can regulate the size and type of buildings or industry in an area, and can even specify the maximum size of buildings and the minimum space surrounding the building. Planning commissions, county commissions, or city councils generally govern the system of zoning in a community. Local government can be petitioned to alter zoning requirements.

Both the National Park Service and the Heritage Conservation and Recreation Service of the US Department of the Interior can furnish information on the procedures necessary to designate specific buildings or sites as historic landmarks. Sites or buildings so designated will be protected against future development.

Public safety and health. Businesses that deal with the public have greater responsibilities than those that do not. Customers and visitors to the business are either licensees or invitees. Examples of licensees would be salespeople, people coming in out of the rain, or those taking a short cut through the property. The legal obligation to licensees is to warn people of any risks on the property. Additionally, the property owner cannot attempt to cause injury to the licensee.

Obligations toward invitees are greater. Invitees are those using the premises as a result of an apparent invitation. Customers fall into this category. The owner's duty to invitees is not only to warn the invitee of potential dangers but also to inspect the premises for potentially dangerous conditions and to take reasonable care to prevent harm to the invitee.

Enforcement is usually done at the state level. Restaurants, for example, must undergo health inspections that cover cleanliness, sanitation, lighting, plumbing and ventilation. Emergency exits and fire extinguishers are checked against the state fire code. Food-handler permits may be required from the state health department.

Transportation. Transportation companies are regulated by various federal agencies. Each state, in addition, has regulations regarding height, width and weight limits. State public service commissions are involved in regulating taxi and limousine companies.

Recreational activities. The law impacts on recreational activities in such things as liquor laws, gambling, and racing regulations as well as restrictions on various recreational pursuits such as hunting, fishing and boating.

State regulations typically control the legal age of an individual to be served alcohol, when alcohol can be served, and the presence or absence of gambling machines on the premises. Similarly, states regulate the type of betting or racing allowed in the community. It is difficult to change community laws enacted to "safeguard" the morals of the people. The type of tourism developed must be in accordance with local mores and customs.

Licenses for hunting and fishing are usually controlled at the state level. Temporary licenses are usually available for out-of-state visitors.

Taxation. The common forms of taxes are income tax, privilege tax, consumer sales tax, excise tax and licensing fees. Income tax is paid at the federal, state, and often the local level. Companies are, in addition, often taxed for the "privilege" of conducting business. Often called a business and occupation tax, this can be enacted at the state and local level. Most states have consumer sales taxes on various goods and services. There are usually exceptions to this tax, such as for food. Excise taxes are placed on items not considered essential to life, such as cigarettes and beer. Most businesses will have to have an annual license to conduct business. The business license must usually be displayed in a prominent place at each unit of business.

Business organization. Businesses may operate as a sole proprietorship, as a partnership, or as a corporation.

A sole proprietor exists when one person operates a business without incorporating it. Business taxes are paid as part of the owner's taxes. Business income is regarded as the individual's income and losses are treated the same way. The owner is liable for any debts of the business to the amount of his or her personal assets.

A partnership is similar except that it involves more than one person.

To incorporate, a business must obtain a charter and meet the requirements of the state in which it is incorporated. Business income, losses, and taxes are treated separately from that of the owners, who have limited liability for business debts.

Employment. When employees are hired, the business must adhere to regulations designed to protect the employee. Employees must be paid at least the minimum wage. If the employee works more than 40 hours a week, overtime must be paid at the rate of time and a half. (There are some limited exceptions to this rule including the requirement of 44 hours for employees of hotels, motels and restaurants.) Additional regulations aim to prevent employers from discriminating against employees on the basis of age, sex, race, color, religion, national origin or handicap.

Employers are expected to withhold taxes from employees' pay checks. They must also pay half the Social Security (Federal Insurance Contributions Act) tax of each employee. Workers' compensation mechanisms have been established as a no-fault method of compensating employees who are injured on the job. All employers pay into this fund based on the amount of hazard associated with each employee's job and the safety record of the employer.

Child labor laws must be obeyed. These place limits on the minimum age of and hours to be worked by young people. Generally, youngsters under the age of 16 cannot be employed without a special certificate, and restrictions are placed on the number of hours anyone under 18 can work.

Employers have a responsibility to protect the safety and health of their employees in the workplace. The Occupational Safety and Health Administration (OSHA) regulates and inspects business premises to ensure that employees are not made to work in an unsafe environment.