February 18, 2015

Online travel sites challenge bills trying to get more tax from them

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Photo by kevin dooley with Flickr Creative Commons License

Photo by kevin dooley with Flickr Creative Commons License

Photo above by kevin dooley with Flickr Creative Commons License

By Rebecca Lessner

For MarylandReporter.com

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.

RebeccaAnnLessner@gmail.com

  • Dale McNamee

    From the article : “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.”

    This is a good illustration of why Maryland is in the shape that it’s in…

  • Dale McNamee

    I’ve used sites like Expedia,etc. to get the best rates for a hotel room and I pay all of the little fees that a hotel charges (in room movies,mini bar,etc.) if I use such.

    The city or county gets their taxes from me when I leave the hotel… So, why tax the sites ?

    How much tax revenue do they get from empty rooms ?

    The government is very greedy and beholden to special interest groups who don’t like competition…

    So, why don’t they offer the same rates directly to the travelling public themselves ?

  • Keith Yockey

    I must be missing something here. Buying rooms @ wholesale should be tax exempt because the room is a resale item. Why can’t the hotel charge/collect/remit the Sales Tax @ check-in? That seems to be the easiest way to solve this ‘problem’.

  • Honey

    Suppose I rent a room – at the same time an agency is renting a room.
    I decide not to go and sublet my room to someone over the price I paid.
    The agency turns around and rents their room for over the price they paid.
    Since taxes were paid on the initial acquisition. Why does the state feel they are entitled to any private transaction at a later time.
    Flush tax, rain tax, death tax, This tax and spend has got to stop…
    I would stop booking people for Maryland- See how much tax the government collects on an empty room.

  • Honey

    The government wants sales tax on the full price of the room even though the rooms are being sold at discount prices to agencies.
    This is like going to Store and buying a TV that is on sale for $100 but the original price was $200 so the state wants to collect sales tax on the $200.
    It the State can do this to hotels how long before this scenario becomes our reality ?