Another major battle is being quietly waged between the OTCs and the major hotel companies. The ramifications of which could potentially leave one of the parties responsible for millions of dollars in tax dollars. And it’s once again causing extreme contention between the sides
Dubbed the Travel Intermediary Booking Tax, it’s a mindboggling issue that’s got many baffled, but may leave hoteliers on the hook for occupancy taxes not collected. According to the American Hotel and Lodging Association, online travel companies (OTCs), such as Orbitz, Expedia, Travelocity, and hotels.com, have long paid occupancy taxes to the local taxing jurisdictions based on their discounted rate rather than the advertised rate purchased by the customer through their service. Make sense right?
Problem is that cash starved local jurisdictions want to collect occupancy taxes based on the retail value of a room, not what it was actually sold for. That means hungry municipalities are looking to collect that difference between what they perceive what the room was sold for and what it was actually sold for by the OTC. And the AHLA is worried its hoteliers that are going to have to make up the difference either directly or through the increase of other taxes such as real estate taxes.
Still confused? Here’s an example. If the XYZ hotel sells a room directly for $100 and is located in an area with a 10% occupancy tax, $10 is paid on that room. If that same room is sold on an OTC site for a $100, only $80 of that is for the room. The remaining $20 is commission and service fees, meaning only $8 in occupancy taxes are generated.
Local jurisdictions want what they see as unremitted tax revenue and are in some cases filing lawsuits to get all that extra money they feel is owed to them. The AHLA feels this places hotels at a competitive disadvantage and say the OTCs are trying to get legislation passed exempting them from paying the difference. The OTCs on the other hand, disagree, and its spokespeople are saying they are only seeking to clarify the situation federally so as to not have to deal with thousands of local jurisdictions all seeking their own solution. The AHLA says the OTCs are looking to get the federal government to dictate rules where they have no place. The OTCs say they are just looking for clarification on the issue.
To listen to all the posturing taking place on this issue now, it’s evident it’ll be a big part of the AHLA’s lobbying this year.
“I think this is a greater threat than people are giving it credit for,” said Chris Nassetta, President & CEO, Hilton Worldwide, at the AHLA’s Legislative Action Summit this morning. “If this legislation passes and given the state of disarray of many municipalities’ financing, they will look to make up what they lose. We will foot the bill if the federal government intervenes where they shouldn’t. They will adjust the taxes to the hotels and our companies to compensate them for it.”
Nassetta said the OTCs have spent “huge dollars” on this issue and have “tried to make it known on the Hill” that the lodging industry was supportive of this potential legislation. “They have money time and momentum we haven’t been at the table to fight it,” he said.
Steve Joyce, President & CEO, Choice Hotels International said the lodging industry is way behind on putting their point of view in the minds of elected officials.
“The OTCs have made this a top priority and are way ahead. We have to get out and say several things that are flawed about this legislation. How it puts [OTCs] at a competitive advantage over hotels, shorts municipalities on taxes and how it is bad for bad for the hotel industry,” said Joyce, who noted that proposed legislation also includes language that would prevent the hotel industry from creating its own OTC.
“This is difficult for brands or independent hotels to fight,” said David Kong, President & CEO, Best Western International. “It is really important to explain this issue. Many on The Hill are not familiar with the merchant model – maybe they get travel agent model – but they don’t understand we don’t have the money and the OTCs are keeping the difference on that margin.”
Meanwhile Andrew Weinstein, Spokesperson with the Interactive Travel Services Association (ITSA), who is tasked with getting out the OTCs point of view sees things entirely different.
He suggests there is a big divide among hotels and said 300 hoteliers signed a letter to Congress urging them to pass lines along lines his organization has suggested. He said OTCs see this issue as needing “some type of federal solution to what is now an unworkable tangle.”
“We are open to working with the AHLA. We think most of the travel industry has come down on our side because it affects all intermediaries,” said Weinstein, who told Hotel Interactive last week the ITSA is working with ASTA, U.S. tour operators and several major labor unions on this issue.
Weinstein continued: “This really stems from a misunderstanding. Hotels always set their prices and are never forced to sell room. Hotels offer discounts all the time and the taxes on those rooms are always charged on the amount the hotel receives. We think clarifying this situation to make clear the tax to be levied and the many intermediaries that help sell rooms is on the final cost on the room. The division is caused mostly by confusion and not the actual facts in this issue.”
Shawn McBurney, Senior Vice President of Governmental Affairs, AH&LA, said the AH&LA learned of this legislation not through the third parties themselves but through other sources. “They [OTCs] are being very quiet on this. They didn’t share it with us but we have been able to obtain several drafts of this proposed legislation. It has never been introduced and they are trying to attach to other bills that are moving through. They have been doing this for year. Us, only four months. And when we express opposition and concern to elected officials we are told you support this,” he said.
On Friday, Weinstein presented Hotel Interactive with an open letter from the five leading organizations representing intermediaries in the travel industry - ASTA, ITSA, USTOA, BTC, and HEDNA in anticipation of the Legislative Action Summit. In interest of being fair, we present it here. The AH&LA, should they choose to respond point by point will be given equal opportunity by Hotel Interactive.
March 12, 2010
An Open Letter to Our Partners in the Hotel Industry:
As some of our oldest and most important allies in the travel industry, we write today to ask for your assistance with a problem that could damage all of our businesses, in hopes that you will work with us to find a mutually-acceptable solution.
There has been a significant amount of acrimony over recent weeks regarding our efforts to work with Congress to resolve the confusion sowed by self-interested trial attorneys over the applicability of local occupancy taxes to intermediaries such as online companies, travel agents, tour operators, and business travel bookers.
As you know, there are more than 7,000 municipal tax authorities in the United States, and many of them are already attempting to legislate or litigate their own solutions. If even a fraction of those municipalities succeed, it could result in an impassable web of overlapping, confusing and contradictory local tax schemes.
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, each with different definitions, tax rates, audit procedures, and paperwork obligations.
Who would lose? We all would.
Our job is to bring you customers. That’s how we both prosper. And that’s why we want to work with you to resolve this issue before it hurts our ability to bring you the customers we both need to grow and succeed.
Successful resolution of this issue cannot take place at the local level. It will require a fair and equitable national standard, and we’d like to ask for your help to develop the best solution in that area.
Our proposal revolves around three simple principles.
First, let’s move this issue from the local level up to the state level. We don’t want to interfere with the states’ ability to tax whatever services they want. We simply want to ensure that these tax decisions are made with consistency and fairness at a more logical level. Nonetheless, it would be quite difficult for all but the very largest travel agencies to find the resources to even manage to 50 state requirements, while 7,000 would place a staggering compliance burden on nearly every participant in our industry.
Next, let’s remove the litigation overhang. There’s nothing in the legislation that will abrogate any ongoing litigation, and municipalities have had several years to pursue action, if they wanted to do so. Now we need to halt the endless trial baiting of self-interested plaintiff’s attorneys, so we can get back to the business of promoting local travel and tourism.
Third, and most important, let’s protect every dollar of existing occupancy tax revenue. There have been hyperbolic claims that billions of dollars in existing tax revenue would be lost by passage of the legislation. Nothing could be further from the truth.
A national standard would not affect existing collection of hotel taxes in any jurisdiction. And as for the supposed revenue from intermediaries, not a penny is being collected today, and thus not a penny would be lost, regardless of any legislation. Both of these facts were supported in a report evaluating the issue by the non-partisan Tax Foundation, which has endorsed a national standard.
We think these three broad principles offer a sound foundation for a solution that works for all of the participants in the travel industry, but we want to be sure that all of the concerns you have raised are addressed. If you’re worried about any potential language, let’s work together to fix it.
We do not seek to avoid having our services taxed. They are today in a variety of ways. Nor do we think municipalities should attempt to shift any additional tax burden to hotels, and we will work with you to fight any such efforts aggressively. Working together, we can help municipalities increase revenue by increasing visitors, not squeezing their travel partners with higher taxes.
We would be delighted to meet with the leadership of the AH&LA at any point next week during your legislative conference in Washington or at any point thereafter to address this critical issue. Please let us know your availability to do so.
In reality, it’s in all of our best interests to find a federal solution that addresses this intractable issue and removes the legislative and legal uncertainty for travel intermediaries, so we can get back to doing what we do best: working with our partners in the hotel business to bring you business.
Thank you in advance for your reasoned consideration and dialogue on this important subject.
Sincerely,
Paul M. Ruden
Senior Vice President
Legal and Industry Affairs
American Society of Travel Agents
Kevin Mitchell
Chairman
Business Travel Coalition
