Photo above by kevin dooley with Flickr Creative Commons License
By Rebecca Lessner
Online travel sites are challenging legislation that claims their companies, such as Expedia and Orbitz, “buy and sell hotel rooms” and as such, they should be paying the state and Maryland counties more sales and hotel taxes.
Howard County lawmakers are sponsoring their own bill similar to statewide legislation heard by a Senate committee last week.
Proponents and opponents of the Howard County bill disagree on whether this is a “new tax” burden or simply “closing a loophole” in existing legislature.
“This is what the bill’s trying to do, is make sure that whole 7% [hotel tax] goes to where it should go.” said Del. Frank Turner of Howard County.
Howard County officials believe that online travel companies (OTCs) should be paying county and state taxes on the final price of the rooms they charge customers.
As reported last week, this is the comptroller’s current interpretation of taxable price and that issue is currently before the Maryland Tax Court (Travelocity v. Comptroller). The comptroller is seeking back taxes, penalties and interest of approximately $6 million for sales tax payments from March 2003 through the first quarter of 2011.
Baltimore City and Baltimore, Montgomery, and Worcester counties have sued the online bookers over the definition of taxable price as it applies to their local hotel taxes. These jurisdictions have reached settlement agreements with the various online travel companies regarding unpaid taxes.
Paying taxes on discounted rate
At Wednesday’s hearing on HB 209’s in the House Ways and Means Committee, the OTCs argued that the amount already taxed is what hotels are actually paying on a discounted room rate, and that the total sum the consumer is buying includes taxes and a “service or booking fee” that currently bypasses taxes and goes directly to the travel site.
Online travel sites “assume no inventory risk in the rooms concerned and do not buy, mark up, or resell blocks of rooms, as falsely claimed by tax proponents.” said Tammy Cota, executive director of the Internet Coalition.
The fiscal policy note on the bill by the Department of Legislative Services says: “In many instances, online travel companies (OTCs) can purchase bulk hotel room rentals for a reduced rate from a hotel, which they in turn rent to customers.”
But the president of the Travel and Technology Association, Stephen Shur, said the fiscal note is “factually incorrect.”
Shur said courts in Wisconsin, Colorado and Florida all found “no factual basis” to say sites like Orbitz are in the business of reselling rooms.
If the OTCs are in fact reselling rooms at a higher price, they should also be paying state and county taxes on that full-price, supporters of the legislation say..
The OTCs argue that they are not in the business of “reselling rooms.” They say the only price that should be taxed is the price originally paid by the OTC to the brick and mortar hotel for the rental of that room.
The actual price?
So what is that actual price being taxed?
Legislators would like to know and consumers would probably like to know. But the online travel site agents says that under contracts with hotels, they are not allowed to disclose the discounted amount they are paying for the rental of rooms.
“I have no sense as the consumer what portions are taxes, what portions are service fees,” Del. Mary Washington, D-Baltimore City, told Shur.
“How much am I actually paying?..At one point you said you’re hosting a website, at one point you said you’re marketing…So what exactly am I paying for?” Washington asked.
The Howard County bill proposes taxing the full amount instead of the room payment to the hotel.
This change costs the consumer no more, but it reduces revenue to the online brokers.
Travel Tech says this “extra tax” will discourage tourism in Howard County as well as any other counties looking to adapt similar legislation.
However the Maryland Hotel and Lodging Association (MH&LA) says Anne Arundel County closed their “tax loophole.”
“Last year in fact, the hotel occupancy in Anne Arundel County was up 5.3% over the prior year.” said David Reel, president of MH&LA.
One thing OTCs and Howard County legislators can agree on is the fact that whatever the outcome of this bill, it will result in “costly litigation” by the losing party.