Photo above by JeepersMedia with Flickr Creative Commons License
By Len Lazarick
The Senate in a 32-15 vote Tuesday passed a bill its sponsors claim closes a tax loophole for online travel sites, but those companies as well as brick-and-motor travel agents are protesting it as a new tax on services.
The bill, SB 190, will now go to the House of Delegates for consideration. It was largely opposed by Republican senators such as Sen. Michael Hough, R-Frederick.
“I found this very legally questionable, what we’re doing here, they do not have a brick and mortar presence,” said Hough. “It gets into taxing services, which is a bad precedent and is why I voted no.”
An earlier story in MarylandReporter.com explained the complexity of the issue, which is now before the Maryland Tax Court. In a lawsuit against the online companies, the comptroller is seeking to recover back taxes.
“Is there a good reason why this body should intervene in a court case?” asked Sen. Bob Cassilly, R-Harford, during the more intense debate Monday night.
“We’re not intervening in any case,” said Sen. Richard Madaleno, the floor leader and lead sponsoring, saying they were trying to avoid lengthy appeals.
Trying to understand the issue
Various senators were trying to wrap their heads around the dispute which involved what is the “taxable price” of a hotel room.
The online companies have been paying the state 6% sales tax on the discounted rate they give the hotels, not the full price they charge consumers, who are also charged the same taxes and fees as they would get at the hotel.
The Internet companies keep the difference in price and the tax paid on it.
These companies say that difference is their service fee from the hotel and shouldn’t be taxed.
Supporters of the bill make the analogy to a TV set bought at a big box store. The store pays the wholesale price to the manufacturer or distributor and does not pay sales tax. The store then charges the consumer the retail price and the sales tax based on that full retail price, and the store remits the sales tax to the state.
On Monday, Sen. Andrew Serafini, R-Washington, offered an amendment to make the companies disclose the service fee to the consumer, but that amendment failed.
“Neither side likes my amendment,” said Serafini. “Expedia doesn’t want you to know the discounted cost.”
The bill is backed by Marriott International, the huge Bethesda-based hotel chain which has heavily lobbied for the measure.
Madaleno said, “Almost everyone in the state is supporting my legislation,” including the Maryland Chamber of Commerce, not a group typically backing Madaleno’s generally liberal legislation.
In the House, a companion bill has already had a hearing, but no action by the Ways & Means Committee.
The online sites and local travel agents said the bill could have “a devastating impact” on the travel and tourism industry.
The Maryland agents say the way the bill is written the fees they charge for booking hotel rooms will now have to be taxed.
“Taxing travel agency service fee income – already subject to federal and state income taxes – creates a disincentive for agents to spend their time bringing people to the state and risks dampening overall demand for travel to Maryland,” said Karen Dunlap of Travel-On, Ltd in Beltsville.