Online Travel Companies Keep Tax Dollars Meant for Promotion

Equal Tax on Hotel Bookings Supports Oregon Tourism.

During the 2013 Legislative Session, the Oregon Restaurant & Lodging Association (ORLA) will advocate for legislation that will assure Online Travel Companies (OTC) such as Expedia, Travelocity, and Orbitz pay the same amount of taxes as local hotels that use direct hotel booking.

The Problem
Currently, 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 website. The room rate is $100 and Anytown levies a 10 percent occupancy tax on rooms, so the amount charged to Mr. Public is $110. The hotel then remits the $10 occupancy tax to the city.

Conversely, if a guest books the same room through an OTC, the guest will still pay $110 dollars, but the amount covers the room charge plus the OTC’s “taxes and fees.” The OTC calculates the occupancy tax based on the wholesale price it pays 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.

This practice results in lower taxes collected by state and local jurisdictions for rooms booked through an OTC, rather than directly with a hotel. In fact, researchers estimate that the City of Portland alone loses out on $1 million a year because of the OTC’s failure to pay occupancy tax based on the retail instead of the wholesale room rate.

Many jurisdictions throughout the country have initiated lawsuits against the OTCs because of this practice. The city of Columbus, Georgia recently won a suit against Expedia, in which the court found that Expedia should pay taxes to the city based on the advertised room rate, not the lower wholesale cost. Litigation initiated by the city of San Antonio, Texas had a similar outcome.

Subsequent to the Columbus, Georgia decision, Expedia, Orbitz, Travelocity, hotels.com, (and possibly others) delisted hotels in Columbus, and results for this search are instead only listing neighboring towns. This delisting also has occurred in other jurisdictions.

In addition to litigation initiated by local and state tax authorities, many private consumer protection lawsuits have been filed against some OTCs, contending consumers who booked rooms through these companies using the wholesale model were misled on charges (the amounts labeled as “taxes and fees”).

The Solution
Legislation that will create a statewide standard for the rate at which lodging taxes are calculated and paid to the state and local governments is the best solution. Therefore, ORLA asked the Legislature to draft a bill that specifies that transient lodging taxes must be computed on the total retail price paid by a person for occupancy of transient lodging.

The proposed legislation will mirror SB 694, which the Senate Committee on Finance and Revenue introduced in 2011. ORLA also supported a similar bill, SB 1619, during the 2012 Legislative Session.

What Does This Mean for Your Restaurant?
The biggest percentage of the tourism dollar is spent in restaurants at about 27 percent; next is lodging at about 24 percent. If our state and local jurisdictions around the state were able to keep the $1 million a year to promote tourism, imagine how much these increased efforts would help to promote Oregon.

Remember, this is not an additional cost to the consumer. It is a tax that is already being collected, but not being remitted to the promotion district. It is being kept by the online travel company.

We, as an industry, promoted the statewide tax for a reason – to build Oregon as a brand and attract tourists. That’s what the tax should go towards, it should not be taken by the OTCs. | NELLIE deVRIES