Online travel companies ducking taxes
February 10, 2012
Across the country, states are starting to take a look at how online travel companies popular websites such as Travelocity and Expedia handle sales taxes and fees. No exception to the rising concerns, Utah is joining in on the debate. State legislators will be considering the recently submitted bill, S.B. 70 entitled "Sales and Use Taxation of Short-Term Lodging," which attempts to close a loophole that currently allows online companies to siphon away millions in state tax revenue.
"This idea has a long history," said Utah Hotel & Lodging Association executive director Michael Johnson. "There are points we’ve been pushing and defending for a while now.
"The bill got started in the last legislative session and there was early discussion on whether or not it was right for online travel companies to charge a tax to customers and not remit that charge to the government."
If an online travel company sells a room for $100, it may recoup 20 percent of that charge and the remaining 80 percent goes to the hotel. The "additional fees and taxes" are tacked on to the $100 sales price, bringing the total to $110. But it’s how that extra charge can be divided that creates the loophole, Johnson said. Online travel companies pay taxes on the 80 percent submitted to hotels and pocket the untaxed 20 percent as additional profits.
"We’re talking about millions and millions every year that goes into their pocket," Johnson said. "It adds up quick when you’re talking about that many transactions."
According to the Center on Budget Policy and Priorities, Utah’s loss is over a million dollars a year that would go to state and local agencies.
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Teri Whitney, of Sunflower condominiums and the Park City Area Lodging Association, said in Park City especially it has been an ongoing issue.
"If one of these online travel agencies books a reservation through one of our organizations, they’re collecting a room tax and putting it into their profits," she said.
"This issue developed because online travel agencies have really blossomed. They have become more predominant in the industry, as people become more aware of how to shop online. Reservations are continuing to increase, but tax revenues decreasing."
Six counties and cities have filed intent to litigate, meaning parts of the state will soon be in court seeking years of unpaid taxes online travel companies kept as profits.
"There are two schools of thought in play," said the bill’s sponsor, Sen. Curtis Bramble. "There’s those who believe in taxing what customer pay, and then there are those who believe taxes should be based on what the hotel receives. The bill coming forward is trying to bridge these differences."
"There has been significant discussion for the past two or three years trying to find a solution that’s been elusive," he added.
The bill was first introduced last year as a discussion point that interim committees could hash out, but for this session Bramble said he hopes the issue will find some kind of resolution.
In many cities and counties in the country, resolution has turned to litigation where courts have awarded back pay in taxes owed. In South and North Carolina, tax commissions determined online travel companies had to pay the full amount. In New York City, Connecticut, Florida, California and Hawaii, legislators passed laws to claim the full amount of taxes owed for future transactions.
"This is something that’s bubbling up in states across the country," Johnson said.
Whitney, who also serves on the board for Utah Hotel & Lodging Association, said she was glad the process was finally coming to a head.
"You have to get business however you can," Whitney said. "We need these companies to help us book rooms. But if they’re collecting the consumer tax, they should have to submit it to the state like we do, not keep it as profits."
S.B. 70 would take effect on July 1 this year if passed. It is currently awaiting committee discussion.