Hotel taxes make online comparison shopping tricky
— -- How many times have you surfed from site to site in search of a hotel room, and stopped when the results page posted a low rate? Unless you've clicked through and determined the final charges, you really haven't comparison shopped at all.
In yet another example of the mysteries that occur behind the screen, many major travel sites charge you booking fees when you use them to reserve a room. Now in principle, there's nothing wrong with being levied a fee for such services. But the lack of transparency about such charges—and the manner in which they're bundled into "taxes"—has set off a multi-million-dollar firestorm that could transform how hotel rooms are booked online.
Let the lawsuits begin
We all know a hotel bill includes a complex list of taxes and occupancy surcharges. But how such payments are collected and processed by third-party travel sites has come under close scrutiny. As noted on this site several months ago, online travel agencies have been facing lawsuits from municipalities across the country, which claim these cities have been cheated out of tens of millions of dollars in hotel and occupancy taxes. Some reports estimate the number of cities has reached 200 and the list includes such major destinations as Atlanta, Chicago, Los Angeles, Miami and Philadelphia.
In essence, these municipalities claim they receive taxes from travel sites based on the wholesale rates the sites pay for the rooms, not the higher retail rates the sites charge consumers—and that gap can equal millions for many local governments. Earlier this month, for example, an administrative hearing officer awarded the City of Anaheim $21.3 million in back taxes, interest, and penalties from Expedia, Orbitz, Priceline, and Travelocity. Anaheim Mayor Curt Pringle explains, "The issue at hand is full reimbursement of the taxes collected. There is no reason why online travel companies should be paying a different amount of taxes than others who book the same hotel rooms."
Fighting such charges is the Interactive Travel Services Association (ITSA), a trade group that represents Expedia, Hotels.com, Hotwire, Orbitz, Priceline, Travelocity and other online travel companies. Art Sackler, ITSA's executive director, argues that "Since they do not manage or operate hotels, motels, or other lodging establishments, the online travel companies are not liable for occupancy taxes on the reservation services they provide to the local tourism industries."
So how does this battle among government agencies and corporate titans affect you? Recently I filed a story for Consumer Reports that detailed a class-action lawsuit filed against Expedia in King County, Wash. The central topic of taxation is once again the issue, only this case focuses on travelers rather than municipalities. This particular suit alleges Expedia "breached its contractual obligations by charging excessive amounts in its bundled 'Tax Recovery Charges' and 'Service Fees'," primarily in "stand-alone" hotel bookings but in some cases with bundled packages as well.
Among those eligible to participate in this suit are all consumers who booked a hotel stay between Jan. 10, 2001, and June 11, 2008, through Expedia—either online or via the site's telephone reservations system. Obviously the list of those affected could swell by thousands as publicity increases about the trial that has been set for this July; you can learn more at hbsslaw.com/expedia. Expedia will not comment on pending litigation, but said it will continue to "vigorously defend against the lawsuits."
There are dozens of local governments around the nation—not to mention other leading travel sites—that will be following this case in Washington State very closely. Left unsaid, of course, is an important point: If municipalities are successful in collecting more tax dollars from online travel sites, there is little doubt such bills will be passed on to consumers through higher rates.
Apples and oranges and grapes
For years now, I've been analyzing travel sites and striving to conduct each comparison under identical, real-time, "apples-to-apples" conditions. But sometimes you find there are inherent differences from site to site, so it can't always be a case of comparing apples to apples.
Case in point. I just shopped the Big Three travel sites for a room at the Marriott Marquis in New York City's Times Square for one night next weekend. Lo and behold! All three offered the exact same base rate of $239 for the room itself. That should have made a price comparison quite easy. But here's what I found when I requested the total amount:
• Expedia Taxes and fees: $45.83 Total: $284.83
• Orbitz Taxes and fees: $58.17 Total: $297.17
• Travelocity Taxes and fees: $45.60 Total: $284.60
Obviously the State of New York and the City of New York aren't levying different tax rates on the exact same room for the exact same night, yet there's a range of $12.57 separating the lowest fees from the highest fees. If you comparison shopped across all three sites, and only focused on the base rate, that difference in taxes and fees would have added up quickly, particularly for a multiple-night stay.
So why the discrepancies? The answers lie in each of the site's stated policies—not that accessing such rules is a breeze. For one thing, the largest travel sites don't make it easy to decipher their policies, and even the FAQ sections aren't very helpful. Among all three sites, the best way to learn about the fees you're being charged is to click on the "taxes and fees" icon provided on the rate page, which will activate a pop-up window with fine print spelled out in, well, fine print. In fact, the print is almost microscopic.
So here's what that fine print indicates when it comes to hotel bookings:
• Expedia: "The tax recovery charges on prepaid hotel transactions are a recovery of the estimated transaction taxes (e.g. sales and use, occupancy, room tax, excise tax, value added tax, etc.) that Expedia pays to the hotel supplier in connection with your hotel reservations...The actual tax amounts paid by Expedia to the hotel suppliers may vary from the tax recovery charge amounts, depending upon the rates, taxability, etc. in effect at the time of the actual use of the hotel by our customers. We retain our service fees as compensation in servicing your travel reservation. Our service fees vary based on the amount and type of hotel reservation."
• Orbitz: "Amounts displayed in the 'Taxes and Fees' line for prepaid hotel transactions include an estimated amount we expect the hotel to bill for applicable taxes, governmental fees, and other charges that the hotels must pay to the government. In addition, the 'Taxes and Fees' line includes a fee we charge and retain in exchange for the services we provide in facilitating your transaction with the hotel supplier."
• Travelocity: "Amounts displayed in the 'Taxes and Fees' line for GoodBuy [prepaid] hotel transactions consist of the amount that we expect the relevant hotel to bill us for any applicable taxes, governmental fees, and other charges, plus an additional Processing Service Fee that we retain as described below...Processing Service Fee: Certain service fees are charged for processing your travel reservation through our system. These are often bundled into the Taxes and Fees amount in order to maintain the opaque nature of the 'prepaid' rate, as required by our contracts with our suppliers."
Once you're done wading through all that, you'll conclude that a) you're often being charged service fees when you book hotels online, and b) those service fees are bundled with other fees and not broken down for you. Now, it's understood that most consumers primarily care about the bottom-line price, and if that price is good, then what's bundled into it may not concern you very much. But you should be aware that identical base rates can evolve into very different total rates. And that's why in the case cited above, Orbitz charged $12.57 more than Travelocity for the exact same room at the exact same rate.
One other point: With certain online "opaque" travel models, such as that offered by Priceline, things are a little trickier, of course. You're agreeing to pay a total amount prior to receiving the transaction details, so you're not even aware of the hotel where you've made a nonrefundable booking, let alone a breakdown of the fees. But you are aware of the total price—which is often considerably lower than on a transparent site—so while there may be surprises about the product, there should not be surprises about the bill.
Taxation without representation?
In fairness to travel suppliers, travel agents, travel agency sites, and others responsible for collecting payments, the travel industry—and particularly the lodging industry—is overrun with an array of taxes that vary tremendously from location to location. I've written here before about burgeoning car rental taxes, but the situation is growing more complex with hotels as well.
Last July, the National Business Travel Association (NBTA) produced a report that examined travel taxes in the top 50 U.S. cities with the highest number of air passengers. This analysis included a breakdown of what the NBTA calls "discriminatory" taxes and fees: "These taxes often include a bewildering combination of charges such as excise, occupancy, transportation, tourism, special, facility, and capital improvement taxes, plus a long list of other taxes and fees, frequently imposed by overlapping jurisdictions."
If taxes and mandatory surcharges are something you don't really consider while budgeting your travel expenses, the results may surprise you. The tax rate for a single night at the national average room rate of $103.70 averaged $14.97 nationwide and ranged from $9.33 in Las Vegas to $19.76 in Los Angeles and San Francisco. On the lower end, other Top 50 cities below the $12-per-night tax level were Fort Lauderdale, Fort Myers, Honolulu, West Palm Beach and Salt Lake City. On the higher end, other cities above the $17-per-night tax rate were Columbus, New York City, San Antonio, Ontario, Houston, Sacramento, Nashville and San Diego.
The combined lodging taxes levied by state, county, city and taxing district authorities on a percentage basis averaged 14.28% and ranged from 9% in Las Vegas to 19% in Los Angeles and San Francisco. Obviously, a spread of more than 100% for taxes in cites just 275 miles apart indicates just how dramatically these add-on charges can alter your bill. As for those "discriminatory" taxes, NBTA broke them out and concluded that for that same average room rate of $103.70 in the top 50 cities, such fees averaged $7.41, ranging from $1.30 in Las Vegas to $12.96 in Portland, Ore.
What's most disturbing is that this analysis predates the economic meltdown, and recently many local and state authorities have been seeking to bridge deficit gaps through even more travel tax initiatives. For example, just last week NBTA opposed a new 100% car rental tax increase in Idaho that would double the current rate from 6% to 12%. So the need to remain aware of these bottom-line costs is greater than ever.
Bill McGee, a contributing editor to Consumer Reports and the former editor of Consumer Reports Travel Letter, is an FAA-licensed aircraft dispatcher who worked in airline operations and management for several years. Tell him what you think of his latest column by sending him an e-mail at USATODAY.com at travel@usatoday. Include your name, hometown and daytime phone number, and he may use your feedback in a future column.