With the Groundhog predicting six more weeks of cold weather and the procession of polar vortices across the country showing no signs of abating, many Americans are seeking a getaway to warmer temperatures. However, doing so could become less affordable due to an effort by local bureaucrats & trial lawyers to enact legislation that would increase the cost of travel for vacation or business.
In recent years, legislation to apply local hotel occupancy taxes to the service fee that online travel agents charge when a traveler books a hotel room through websites such as Orbitz, Priceline, Travelocity, and Expedia has been introduced in Ohio, Washington, Massachusetts, Utah, New Mexico, Connecticut, Tennessee, Indiana, and Minnesota. The good news is that all of these bills were defeated. The bad news is the local governments and other forces lobbying for these bills have no plans to cease pushing this tax increase.
Online travel sites facilitate the booking of a hotel room, collecting the room rate, applicable taxes, and then a small service fee. The hotel room rate is currently subject to local hotel occupancy taxes and other levies. The service fee, which is how online travel agents generate income upon which they subsequently pay corporate and individual income taxes, is not. Lawmakers and money hungry bureaucrats across the country are seeking to extend the application of hotel occupancy taxes beyond the room rate and to the fee that online travel agents get for facilitating the transaction between hotels and travelers.
In addition to the added cost of the tax itself, there would be increased compliance costs associated with the application of hotel occupancy taxes to online travel site service fees, which would adversely affect not just online travel companies, but tour companies and travel agents who operate out of brick-and-mortar storefronts. The likely outcome of such a tax would be increased costs for consumers, as is typical of proposals to raise taxes on businesses.
This effort is part of a broader trend in which government officials seek to export the tax burden. Over time, lawmakers who wish to raise taxes have discovered that it’s politically preferable to hike taxes on people who can’t vote them out of office, such as tourists and business travelers, through higher hotel and rental car taxes.
However, proposals to tax non-residents are often based on faulty assumptions and end up also hitting locals. As it would happen, in-state hotel bookings through online travel sites are as high 30 percent according to a member survey by Travel Tech, the trade association representing online travel companies. Online travel tax advocates aren’t limiting their efforts to the legislative process, and are also taking legal action to expand the scope of hotel occupancy taxes. Since 2007, there have been over 30 cases in federal and state courts. Nearly every single one of these cases has ruled in favor of online travel companies and taxpayers.
Among the top targets for advocates of this tax hike on travel is Louisiana, a state where tourism is extremely important to the local economy and whose legislature is set to convene their 2014 session in four weeks. Fortunately for Louisiana taxpayers, Gov. Bobby Jindal is; along with Governors Scott Walker (R-Wis.), Pat McCrory (R-N.C), John Kasich (R-Ohio), Sam Brownback (R-Kan.), and Nikki Haley (R-S.C.); one of the thirteen sitting governors who has committed to opposing any and all efforts to impose a net tax increase on his constituents.
A new online travel tax would have a deleterious and depressing impact on the Louisiana economy, especially in places like New Orleans that are heavily reliant on tourism. Making it more costly to come to town for Mardi Gras or Jazz Fest would do nothing to help the Crescent City economy; in fact, it would do harm.
Rather than reducing municipal tax coffers, research shows online travel companies drive up direct business for hotels, which then increases commerce and taxable economic activity for the local community. Cornell University’s Center for Hospitality Research found that hotels listed on an online travel site saw a correlative boost in bookings not made through a third party. Researchers found that hotels listed on a online travel site, saw a 7.5 to 26 percent increase in direct bookings.
Aside from all of the reasons why online travel tax proposals hurt consumers and the economy, they also distract lawmakers from the real challenges facing state and local governments. Rather than take up the reforms necessary to address the more than $4 trillion in unfunded state and municipal pension liabilities, too many government officials would rather spend their time looking for coins under the couch cushions and ways to squeeze a few more dollars out of the private sector. Once again, we have another example that demonstrates how raising taxes is what lawmakers do instead of governing. Keep an eye out for an online travel tax proposal coming to a state house or city hall near you in 2014
