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December 12, 2014

Travel is About to Get More Taxing

 

Over the years many states and localities have considered proposals that would apply hotel occupancy taxes, which are already objectionable, to services provided by a hotel’s marketing partners—a tax increase on those who are driving business and vacationers to a state or locale.
 
Traditionally, the occupancy tax was levied against the temporary use of a room by a guest, or, as the name would imply, to tax occupancy. But rather than the tax being limited to the rental of the room, states have wanted to extend the occupancy tax to include what is essentially a service fee for services provided by an online travel agency (OTA) to help find someone to rent the room in the first place.
 
This expanded repurposing of a tax on occupancy is inappropriate, and clearly so after an examination of the online travel agency’s business model.
 
OTAs do not buy rooms at some reduced wholesale price and then resell them to consumers. OTAs don’t stock hotel inventory.  Instead, these companies enter into contracts to be the marketers of rooms offered at a certain rate; a rate which includes a fee for their marketing service and processing the transaction. After a customer pays, the OTA sends the room rent and all of the appropriate taxes owed to the hotel, which remits the appropriate taxes to the appropriate municipality. The retained service fee is also taxed as income to the OTA.
 
Service fees are not part of the cost of a hotel room. No occupancy, no occupancy tax. Room? Then a tax. Simple.
 
Policy makers should not stand by as such an expansion of taxes is foisted upon taxpayers, and which most often would hurt small inns and bed and breakfast homes the most since they see big cost increases for potential guests.
 
And now several state governments are next year looking to take a further tax leap—applying an occupancy tax to short term rentals. To put it plainly this is nothing more than another inappropriate tax grab aimed at another part of the OTA’s business.
 
In some states, buying three donuts results in one tax rate, yet buying a dozen results in a different tax rate, which is ludicrous. Creating a different set of tax laws, different from those already in place for hotels or services, is moving in the same wrong-headed direction.
 
Hopefully OTAs and the short-term rental industry will be spared the discriminatory tax wrath of state legislatures in places like Texas, Utah and North Carolina, where legislation next year is anticipated.


 

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