By Larry Jones
May 24, 2010

Trenton (NJ) Mayor Douglas H. Palmer and Columbus (GA) Mayor Jim Wetherington teamed up with Marriott President and Chief Operating Officer Arne Sorenson to urge key leaders of Congress to oppose efforts by online travel companies (OTCs) who seek to pass legislation that would limit the ability of state and local governments to collect taxes on hotel rooms that are booked online in a series of meetings on May 4 with various leaders in the House and Senate.

The team met with 15 members of the Congressional Blue Dogs coalition (a group with a total of 54 House Democrats who are fiscally conservative), Representatives Bill Delahunt (MA), Steve Cohen (TN) who chairs the subcommittee of the House Judiciary Committee with jurisdiction over the hotel tax issue, Richard Neal (MA), who chairs the subcommittee on Select Revenue Measures of the Ways and Means Committee, and Dan Maffei (NY). They also met with Senators Chuck Schumer (NY), who is a member of the Finance Committee and Vice Chairman of the Democratic Caucus, and Bob Menendez, also a member of the Finance Committee and Chairman of the Democratic Senatorial Campaign Committee.

Palmer and others began during breakfast with the Congressional Blue Dogs coalition by explaining how online travel companies such as Expedia, Priceline, Travelocity, Orbiz and Hotel.com are currently collecting hotel occupancy taxes from customers who book their rooms online, but only pass on a fraction of those taxes to state and local governments.

They explained that hotels enter into contracts with OTCs in order to increase their room occupancy. In these arrangements, OTCs are commonly provided a discounted rate for each room they book online. When booking a room, the OTC charges the customer the full retail room rate and collects all related state and local hotel taxes. It was pointed out for example that if an OTC receives a 20 percent discount on a room that cost $200 per day, it would collect $200 from the customer for the room but only submit $160 to the hotel. If the hotel is located in a local area that has a five percent hotel occupancy tax, the OTC would typically collect the tax based on the full amount that the customer pays for the room (five percent of $200 = $10). But in most cases the OTC only remits to the local government taxes based on the discounted rate (five percent of $160 = $8) instead of the full $10 collected from the customer.

Palmer told members, “This practice of holding on to taxes that rightfully belongs to local governments is wrong and it couldn't happen at a worse time when local governments are facing severe budget shortfalls as a result of the recession.” He further pointed out that local governments are catching on to this scheme and filing lawsuits and other actions to recover their hotel taxes.

Wetherington told members that Columbus sued Expedia Inc., challenging the practice of remitting taxes based on the discounted rate and the case was appealed all the way to the Georgia Supreme Court. After reviewing the case, he said the Justices ruled in favor of the city - that Expedia must collect and remit taxes to the city based on the amount that the customer pays for the room. However, he said after the city filed the lawsuit, hotels in Columbus have been delisted by Expedia.com and Hotel.com. Unfortunately, he explained that some hotels in the city are losing money because they are not marketed by online travel services anymore.

Members of Congress were told that the annual revenue loss from this practice is estimated at $1 billion. During the past two years, local government have been successful in suing OTCs and forcing them to pay them back taxes based on the full price of the hotel room paid by the customer. But OTCs are seeking legislation that will protect OTCs from liabilities related to any pending lawsuits and exempt them from obligations to collect state and local hotel taxes. Attempts were made to add such language to the stimulus bill and the travel and tourism legislation before they were approved. So far OTCs have been unsuccessful and members were urged to continue to oppose these efforts.