COLUMBUS, Ohio – A proposal to tax the booking markups of online travel companies, including Expedia and Travelocity, stalled at the Ohio Statehouse this week in a blow to bricks-and-mortar hotels.
A version of Ohio’s $61.7 billion, two-year budget that cleared the Senate last week eliminated a House-passed measure that called for applying the state lodging tax on fees charges by so-called hotel intermediaries. The provision also called for allowing hotel operators to try to collect the tax from guests if their online booking company didn’t collect it.
The issue could re-emerge as compromise budget talks continue this month.
Whether online travel companies should pay taxes on their fees is a matter of legal dispute in states nationwide.
Matt MacLaren at the Ohio Hotel & Lodging Association says online companies aren’t paying their fair share of the hotel tax. He said the companies typically pay taxes on the wholesale room rate they receive from the hotel rather than on the higher retail rate they charge customers.
“We’re optimistic that ultimately the legislation here will be modernized and the language updated,” he said. “We are hopeful that, working in the conference committee, the end result will be a win for fairness.”
The online companies contend the markup shouldn’t be taxed because it pays for their services rather than hotel rent represented by the wholesale rate.
An April 2011 analysis by the nonpartisan Center on Budget and Policy Priorities found that state and local governments are losing about $275 million to $400 million a year in revenue by not ensuring online travel companies pay the appropriate hotel room taxes. For Ohio, the loss was estimated at between $7 million and $10 million in 2010.
A customer may pay a similar room rate through a hotel website as they pay online, but the taxes that get paid on the two rooms differ.
Courts in others states have come down on different sides of the tax dispute, including in the tourism-heavy states of Hawaii and Florida.
Orbitz Worldwide Inc., Priceline.com Inc., Sabre Inc.’s Travelocity, and Expedia Inc., including its subsidiaries Hotels.com and Hotwire, have appealed a Hawaii court’s March ruling saying the sites owe Hawaii a $70 million penalty for skirting state general excise taxes over the past 10 years. A tax appeals court there ruled online travel companies had been selling hotel rooms online for years without paying the necessary taxes.
But in Florida, a divided three-judge panel sided with the online travel companies in February. In a lawsuit filed by 17 of Florida’s 67 counties, the 1st District Court of Appeal panel voted 2-1 that tourist development taxes were due only on what the online firms paid to the hotels, not the full amount they charge their customers. The counties were recently denied a request for a rehearing and the case has been punted to the Florida Supreme Court, the state’s highest court.
Among issues for Ohio senators was the fact that the House proposal was projected to generate a potential increase in tax revenues — causing some to view it as a tax increase. The measure could emerge again as tax code changes are debated in a conference committee negotiating a budget compromise.