Protecting Tourism Promotion Dollars

ORLA Legislative Priority to Harbor Lodging Tax Revenues

With the 2013 Legislative Session underway, Oregon Restaurant & Lodging Association is already working on issues affecting our industry - some that threaten revenue earmarked for tourism promotion.

Level the Playing Field on Transient Lodging Tax

ORLA is supporting House Bill 2508, which will level the playing field on taxes paid by Online Travel Companies (OTCs), such as Expedia and Orbitz, in an effort to prevent targets on local communities. During the downturn of this economy, local jurisdictions are stealing tourism dollars for non-tourism related activities, which negatively impacts the state. Therefore, we want to make sure that out-of-state companies pay the same amount of taxes as local businesses.

Currently, rooms booked online through OTCs do not generate the same amount of taxes as those booked directly through the hotel. In some cases, a hotel enters into a contract with an OTC to provide rooms at a discounted rate, i.e. the “wholesale cost.” The OTC then posts the rooms for sale at a higher rate to consumers. This is referred to as the “wholesale booking model.”

OTCs typically choose to pay state and local hotel occupancy taxes based on the wholesale cost they pay to a hotel for a room, rather than the retail price they receive from the customer. This practice results in lower taxes collected by state and local jurisdictions, which is estimated at about one million dollars annually for rooms booked through an OTC, rather than directly with a hotel.

If a guest books a room directly through a hotel, the tax reflects the jurisdiction’s rate where the hotel is located. For example, assume John Q. Public books a room in Anytown, USA through a hotel’s own website. The room rate is $100 and Anytown levies a 10 percent occupancy tax on rooms, so the amount charged Mr. Public is $110. The hotel then remits the $10 occupancy tax to the city.

In contrast, if a guest books the same room through an OTC, John Q. Public will still be charged $110, but the amount covers the room charge plus the OTC’s “taxes and fees.” The OTC calculates the occupancy tax based only on what it owes the hotel, rather than the advertised cost to the consumer. Thus, in this example, the OTC would remit $88 to the hotel – $80 for the contracted cost of the room and $8 for the occupancy taxes – and the OTC retains the remaining $22 from the transaction.

Many jurisdictions have become aware of this strategy and have filed lawsuits against some of the OTCs for the unpaid tax revenues. In response, these companies are seeking legislation that would protect this practice by making it a legitimate tax exemption through a federal preemption of state and local authority.

ORLA is working with local governments, tourism promotion groups and industry members to develop a statewide standard and make sure state and local tourism dollars are uniformly collected.
House Bill 2508 will establish a statewide rate for taxes on rooms in Oregon stating, “All rooms in Oregon will be taxed at the room rate paid by the consumer.” This proposal will only apply to future sales of rooms occupied after the time of the enacted date (January 1, 2014).

Prevent Local Governments from Expanding Usage Purpose of the TRT

Local government advocates are working on a bill that will expand the usage purpose for any new or increased local lodging tax to allow for non-tourism related services. The bill seeks to change the 70/30 split preemption language in current Oregon Law, and will give local governments the ability to use new and increased room tax revenue to fund city or county services with no regard to tourism reinvestment, which was the foundation of the law itself.

As you may remember, during the 2003 Legislative Session, our industry fought hard and helped pass a bill requiring 70 percent of revenues from any new or increased local transient lodging tax (TRT) to be used exclusively for the promotion of tourism and tourism-related facilities. The League of Oregon Cities and Association of Oregon Counties want the Legislature to repeal the preemption and free up cities to have unrestricted use of the revenues.

Local governments that continue to challenge the use of lodging tax dollars are trying to undermine the original intent of the law: providing stable local-level funding of the tourism and hospitality industry. We know that guests who stay overnight spend more money in local communities, making up nearly one half of all visitors' spending in Oregon. And because room taxes are generated by the visitor industry and shouldered by the lodging industry, revenues should be invested back into tourism promotion to drive increased room nights and increased visitation.

If local governments succeed at draining tourism promotion dollars, it will harm all businesses which benefit from tourists. If the preemption is removed, we will be fighting industry-specific taxes all across the state. | NELLIE deVRIES
 
CONNECT:
NELLIE deVRIES – NdeVries@OregonRLA.org