Cities fight online agencies for hotel taxes
In court cases around the country, cities are going after hotel occupancy taxes they say online travel companies (OTCs), such as Expedia and Priceline, are not paying in full. In many cases, the municipalities are succeeding in collecting the taxes, but for some smaller cities, the cost may be the loss of all business from the travel websites.
More than 40 cities have lawsuits pending that seek to collect the occupancy taxes, according to the Washington-based U.S. Conference of Mayors (USCM). The problem, according to USCM, is that OTCs collect taxes from their customers based on the full cost of the room, but only remit taxes to the cities based on the discounted rate they pay to the hotels. For example, if the traveler pays $200 for a room, and the city has a 5 percent hotel occupancy tax, the OTC will collect $10 for a total of $210 per day. However, if the OTC receives a 20 percent discount from the hotel, it pays only $8 of the tax to the city and pockets the rest, calling it a service fee. “It’s really an assault on the American taxpayer,” says USCM Assistant Executive Director Larry Jones.
Some cities have succeeded in their efforts to collect the full amount of taxes, only to find themselves “de-listed” by the OTCs. That is what happened to Columbus, Ga., says City Attorney Clifton Fay. The city has been in litigation with two OTCs since 2006 to collect the occupancy tax, and it has been left off those companies’ websites for the entire time. While Fay says business is actually up for the city’s hotels this year, the city is still asking the state’s Superior Court to order the OTCs to relist the city’s hotels.
“De-listing” has been used against some cities in Texas, too, Jones says, but it has not been used successfully against larger cities, such as New York and Boston, because the OTCs would lose too many customers. “But, for a smaller city, they just bump everything to the next largest surrounding city,” he says. “They’re playing hardball.”
Bad for business?
The Washington-based Interactive Travel Services Association (ITSA) is opposing local governments’ attempts to collect occupancy taxes from OTCs. “These tax initiatives would not only be harmful to the online travel business model, but to the traveling public and the tax-collecting authorities themselves,” ITSA says in a statement on its website, www.interactivetravel.org.
