Battle over Internet booking tax heats up
By Don Sadler
There’s a battle brewing in the travel industry, and the outcome could have an effect on meeting and event planners. At issue is whether online travel companies and third party intermediaries (TPIs), such as Expedia for example, owe hotel occupancy taxes on their hotel room markups. States and cities seeking such back taxes have filed a number of lawsuits against TPIs. In response, a consortium of TPIs is trying to get legislation passed to exempt them from these taxes.
However, the hotel industry strongly opposes any such legislation, and the American Hotel & Lodging Association (AH&LA) is actively lobbying against a proposal advocated by the consortium that’s being referred to as the Internet Travel Tax Fairness Act (though, no legislation has been formally introduced yet).
The two sides exchanged open letters in March stating their positions. “Travel intermediaries of every size — from mom-and-pop travel agencies to the largest tour operators — could face unimaginable compliance requirements from hundreds or even thousands of new local regulations,” stated the TPI letter. The consortium argues it would be difficult for most travel agencies to find the resources to adhere to 50 state requirements, but even the largest agencies would struggle to handle the 7,000 separate tax jurisdictions that exist in the U.S.
In its letter, AH&LA countered, “the so-called ‘impassable web’ of tax jurisdictions and associated ‘audit procedures and paperwork obligations’ … are nothing new to our industry. This should hardly serve as the basis for federal tax preemption such as the one your members are aggressively promoting.”
TPIs usually calculate state and local hotel occupancy taxes based on the wholesale cost they pay a hotel for a room, not the retail price they charge for it. Therefore, states and municipalities receive less revenue from rooms booked through TPIs than those booked directly with hotels. Recognizing this, at least 40 different jurisdictions have filed lawsuits against TPIs to try to collect back taxes, according to Paul Ruden, senior vice president, Legal and Industry Affairs for the American Society of Travel Agents.
The Internet Travel Tax Fairness Act would create a tax exemption for TPIs through a federal preemption of state and local authority; the TPIs stated they do not believe it can be handled on the local level.
Each side claims that should they lose this battle, the big losers will be hotels and meeting planners. “Hotels of all sizes would lose, as the special preference TPIs would receive from occupancy taxes would lead many state and local governments to raise occupancy and other taxes and fees to make up for the lost revenue,” says AH&LA Senior Vice President for Governmental Affairs Shawn McBurney. “In response, hotels would be forced to reduce staff and eliminate services provided to meeting planners.”
Ruden agrees that planners should be very concerned, but for different reasons. “We don’t want TPIs to be put in a position of choosing which jurisdictions they can afford to sell in and which ones they can’t. Right now, TPIs don’t influence meeting planners’ choices based on things like taxes. But this is what will happen if the TPI’s choice to facilitate a sale will impose the necessity of paying additional tax on the income earned from that sale.”
According to Ruden, “virtually all” of the lawsuits filed against a TPI that have settled so far have gone in the TPI’s favor. One notable exception was a suit in which Expedia lost to Columbus, Ga. As a result, Expedia and several other travel websites delisted hotels in the city, and instead provided results for nearby cities and jurisdictions.
