It has also levelled criticism at apartment and holiday home owners renting out to visitors who would not pay commercial rates under the council's proposal, labelling them "free riders".
The council has proposed in its 10-year plan and rates review, to introduce a visitor differential rate, which would recover the impact of costs associated with visitors, to rates for businesses within its boundaries, which derive an income from tourism.
The accommodation, commercial and mixed-use sectors would bear the brunt of the change, with notional cost recovery estimated between 17c and 50c per visitor a day.
TIA regional chairwoman Penny Clark said holiday homes and apartments, rented out by owners to visitors, were "active" in the visitor industry but because of a council reluctance to target them, they were not paying their way.
If the controversial visitor cost levy was implemented, hotels would have a "stark choice" of either having to pass on increased costs or reduce services, Ms Clark said.
TIA hotels sector manager Rachael Shadbolt said the association was not opposed to the use of targeted rates if they were re-invested into the visitor industry.
However, "the hotels will wear the brunt of this QLDC proposal", she said, with most hotels likely to see an average rates increase of almost 12% on "already significant" rates bills.
There were 20 TIA member hotels in Queenstown, which operate 2794 rooms and have a combined capital of almost $602 million. In 2011 the hotels generated revenues of more than $108 million - and paid more than $1.7 million in rates.
Its submission to the council said, based on the proposal, the Rydges Lakeland Resort in Queenstown would see an increase in its rates bill of about $25,000 per annum - on top of the $240,000 a year it already paid.
Based on TIA calculations, an 85-room hotel would see an increase of about $15,000 on its rates bill, while motels and bed and breakfast establishments would also be hit, with increases of about 10%, Ms Shadbolt said.
Ms Clark said the council did not realise visitors spent "a small portion" of their money on accommodation.
In the year ended 2010, visitors, both domestic and international, spent $700 million in the wider Queenstown-Wanaka area.
"In light of the impact of the council proposals on commercial accommodation, TIA is calling on the QLDC to reconsider its plans with a fairer apportioning of rates across all businesses."
The submission said TIA urged a full analysis on what additional funding - derived from the proposed visitor cost levy - was being spent on and to provide certainty the funds were being "ring-fenced for investment in tourism promotion and destination management" she said.
"TIA suggests that a fairer apportioning of rates across all ratepayers, particularly in the 'commercial' category needs to be addressed.
"More and more visitors are being seen as a 'cash cow' or an easy target by governments at all levels, locally, regionally and nationally.
