Booking Travel Online May be Costing States Half a Billion in Revenue

VIDEO: Hotel is built from garbage that washed-up on European beaches.

You're planning a trip. You log onto your favorite travel-booking site, pull out your credit card, type in your name, address, security code.

Congratulations: You've just rented a room with a view for $250 a night.

Not all of that goes to the hotel, of course. A commission of $25 is probably going to the travel site.

But it's that commission, that extra $25, that may be costing states across the country millions and millions in revenue -- at a time when states are facing massive budget deficits.

More than 40 lawsuits have been filed across the country -- from Florida to Texas, from Myrtle Beach, S.C., to Oakland, Calif. -- to force online travel booking sites to pay taxes on the full amount paid by the consumer, not simply the amount the hotel receives.

Online travel companies maintain it's the room, not the commission, that should be subject to the tax.

The Two Sides Line Up

According to the Center on Budget and Policy Priorities (a policy organization that works "on fiscal policy and public programs that affect low- and moderate-income families and individuals"), every year the country loses as much as half a billion dollars when customers book rooms through online services.

At the end of last year, North Carolina passed a law mandating that these websites collect taxes on the full sale price. The N.C. Department of Revenue estimates that the state will gain $4.9 million in the 2011-2012 fiscal year.

Paul Stone, president and CEO of the North Carolina Restaurant and Lodging Association, said he thinks this new law will have a positive impact on the state's economy. The additional revenue can go toward marketing and state services, and actually help increase tourism, he added.

"It's kind of logical," he said. "If the state has this revenue, it can better promote itself as a great tourist destination."

Andrew Weinstein uses a different logic.

Calls to Expedia and Orbitz were directed to Weinstein, spokesperson for the Interactive Travel Services Association, a trade organization representing online travel sites. He maintains that extending the hotel occupancy tax to the commissions "just doesn't make sense."

"It's like applying a car tax to boats," he said. "It's using a tax in a way it was never intended to be used."

Additionally, Weinstein said the courts have ruled "overwhelmingly" in favor of the travel companies.

Online Sites Are Winning the Battle

Of the lawsuits that have been filed, 15 have been settled. Twelve ruled in favor of the sites; two, from Atlanta and San Antonio, had split decisions; and only one, from South Carolina, ruled against the companies.

A verdict from an April 2009 case in Pitt County, N.C. – which came down before the state passed its law -- noted that the travel companies "in the present case do not physically control or furnish the rooms they advertise," nor do they "'supply' or 'provide' rooms to visitors." Because of this, the court ruled in favor of the online travel companies.

"We have the legal track record on our side," Weinstein said. "It's common sense, and the courts can see that."

The Tax Foundation, a tax research group whose mission "is to educate taxpayers about….the size of the tax burden borne by Americans," also maintains that the tax should apply only to the cost of the hotel room.

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