Op-Ed: Cities overreach on hotel fees

November 11, 2009

A jury recently awarded more than 170 Texas cities $20 million in a dispute against online travel companies over hotel taxes. Not long after, Florida Attorney General Bill McCollum filed suit against Expedia and Orbitz.

The Tax Foundation has filed a friend-of-the-court brief in a similar case between the City of Anaheim in California and Priceline.

As cash-strapped cities are seeking revenue, targeting the service fees charged by these companies seems like a good idea. As my colleague Joe Henchman explains in an Orange County Register op-ed:

Let’s say I search a Web site and book a $100 hotel room. The online company charges me $10 for their service. Anaheim argues that hotel occupancy tax should be paid not only on the $100 room charge, but also on the $10 service fee.

And even though judges have not found the cities’ arguments convincing (lawsuits have been dismissed in nine states and remain pending in the others), cities are suing and even sidestepping courts to subject as many parties as possible to hotel taxes. Joe writes:

Cities’ own laws often state that hotel taxes are paid by hotel occupants, based on the amount the hotel receives. Amounts paid by guests to others aren’t subject to the hotel tax. (Companies must, however, pay income taxes on this amount.) Earlier this year, the 4th U.S. Circuit Court of Appeals held that hotel taxes are owed only by retailers that operate retail facilities, and that online travel companies don’t count.

Unfortunately, some cities are moving to amend their laws to apply hotel taxes to everyone conceivably connected with hotel transactions. Travel agents, brokers, and advertisers might be in danger, depending on how broad the laws get. …

Hotel taxes are attractive to local politicians because they are a way to shift the tax burden to “outsiders.” But because every U.S. city has a hotel tax, we’re all somebody else’s “outsider.” The net result is that everyone is taxing everyone else in an unaccountable way, and unless the cities and their lawyers are stopped, in an unpredictable way, too.

Read the full op-ed here.

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