TALLAHASSEE, FL—The State of Florida has become the latest battleground in the struggle between the lodging industry and online travel agencies (OTAs).
Earlier this month was the deadline for filing amendments on a pair of controversial bills currently being considered in the Florida State House and Florida Senate. The bills would allow the OTAs— which include Expedia, Orbitz and Travelocity— to pay occupancy taxes based on the discounted wholesale rate they pay to hotels, rather than retail rate the consumer ends up paying for the room.
If the bills become law, it would end up creating two different tax treatments for basically the same transaction, which would adversely affect hotel owners in the state. Local and state governments depend on occupancy taxes to provide basic services to their communities. In a state like Florida, where tourism is such an important industry, tens of millions of dollars are at stake.
The OTAs argue that the difference between the wholesale price they pay for the room and the retail price they charge the consumer is really a service fee and, therefore, shouldn’t be taxable.
Should the bills in Florida become law, the American Hotel & Lodging Association (AH&LA) and other industry groups fear that the effected municipalities will start to come after local hotel owners to make up the shortfall.
To state their opposition, nine hotel companies, including Marriott International, Starwood Hotels & Resorts Worldwide, Hilton Worldwide and Best Western International, sent a letter of protest to Florida governor Rick Scott. The AH&LA signed on as did the Asian American Hotel Owners Association, among others.
But the OTAs are hardly stopping with Florida. The AH&LA, in fact, views the OTAs’ Florida campaign as a test run for a larger challenge to occupancy taxes on the national level. As a case in point, the OTAs’ trade group, the Interactive Travel Services Association, has proposed federal legislation called the “Internet Travel Tax Fairness Act,” whose provisions mirror the Florida bills, giving themselves certain prerogatives, while limiting the hotels’ rights.
“Instead of changing their practices, they’re pressing Congress to grant them a federal pre-emption of state and local law that would prevent jurisdictions from taxing them above their wholesale costs,” said AH&LA senior vp of governmental affairs Shawn McBurney, who is the Association’s point person on the issue.
“If their proposed legislation is enacted, hotels would find themselves at a competitive disadvantage,” McBurney continued. “They’d be subject to significant tax increases as local governments sought to make up for lost revenue.”
To get a handle on just how much occupancy tax revenue would be at stake nationwide, the AH&LA underwrote a study. The findings? Local and state jurisdictions would be out anywhere between $275-$400 million, an amount hotels may be made liable to pay.
The OTAs would also be granted favorable tax treatment over hotels, giving them a significant advantage in marketing rooms, according to McBurney.
The AH&LA Governmental Affairs Department feels so strongly about the occupancy tax issue that it devoted a panel to it at its March annual Legislative Action Summit meeting in Washington, DC., which McBurney moderated. “Although hotels pay all the taxes they owe and their actions haven’t been questioned, hotels will be the ultimate victims of the legislation,” he predicted.
At other points during the Summit, Marriott International president & COO Arne Sorenson and Carlson executive vp Nancy Johnson used the meeting to frame the occupancy tax debate. “The OTAs went to the Hill to get a law that would ensure they have a tax policy advantage. We think it’s bad politics as well as creating an unfair competitive advantage. One distribution channel shouldn’t have a federally-mandated advantage over another,” Sorenson said.
Added Johnson: “It doesn’t seem fair. If hotels have to pay the occupancy tax, the OTAs should be required to pay the tax as well.”
Marlene Colucci, AH&LA’s executive vp for public policy, has identified efforts to defeat the OTAs on the occupancy tax issue as one of the Association’s three key legislative issues, the other two being the need for the Federal government to devote funds to promote travel and tourism to the U.S. from abroad, and labor issues, chiefly concerning the activist role being played by the National Labor Relations Board.
The AH&LA has requested that members contact their elected officials in Washington to make the industry’s position on the OTAs and occupancy taxes known. Should the legislation become law, it also would raise serious questions about the Constitutional role of Congress in intervening in state and local tax issues, Colucci noted.
