“Bulk Discount” Terminology is Inaccurate Description of Taxation of Online Travel Services

March 25, 2010

Tax Analysts reports today (subscription required) on a Florida bill that would affirm that state and local sales taxes do not extend to online travel services provided by companies like Expedia, Travelocity, and Orbitz. Unfortunately, the article distorts the issue to push the reader to support the tax, a bias unusual for a Tax Analysts news piece:

HB 1241, approved March 17 by the House Economic Development Policy Committee, would allow the online companies to pay state sales tax and local option taxes on the price they pay for rooms at a bulk discount and not the higher retail rate they charge the individual purchasers.[…] Meanwhile, a bill proposing the opposite remedy — taxing the online companies at the retail rate paid in the end by consumers — has been delayed.[…]

Ten Florida counties have already sued to collect the tax on the end purchase price.

Of course it doesn’t seem right that everyone has to pay sales tax on retail purchases but someone can get away with paying it on the “bulk discount” wholesale price. Proponents of these taxes capitalize on this sentiment and that side of the issue eagerly tries to frame the issue in those terms. However, it’s neither an accurate nor balanced way of describing the situation.

As I laid out in our report last month, “Cities Pursue Discriminatory Taxation of Online Travel Services,” hotel occupancy taxes properly extend only to, well, hotel occupancy. Online travel companies do not operate as agents nor buy and sell hotel rooms; rather they offer a facilitation service, like a personal shopper.

Taxation of services under a sales tax is justifiable, but when cities tax only Internet-based travel facilitation services, this suggests that the real motivation is to shift tax burdens to nonresidents and burden the free flow of interstate commerce. I don’t know off hand how Florida taxes services like personal shoppers or other facilitation industries. I would be surprised if they impose sales tax on them. If so, it’s absurd to say that online travel companies are somehow escaping taxes that everyone else has to pay.


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