Travelocity is sending out emails asking their customers to help stop politicians “from raising taxes on your travel” by signing an online petition to support new federal legislation.
Online travel companies (OTCs) are trying to protect their profits as localities across the country, including those in the Historic Triangle, fight to collect taxes on fees for discounted online travel rates. These companies want Congress to pass a bill that would keep local governments from collecting taxes on the retail room rates they book for travelers.
Companies like Travelocity believe now is the time to lobby Congress and rally consumer support – without giving the public too many details on the issue.
The OTCs want the new bill to pass so they no longer have to continue arguing their case in various courts and paying costly settlements, while local government organizations and traditional lodging groups staunchly oppose it, saying it cuts into their revenues.
When a customer books a room through an OTC, they see a rate, $100, for example, that they assume is the cost of the room. The OTC pays the hotel a reduced rate, usually between 20 and 30 percent less, so of the customer’s $100, the hotel gets the reduced rate of $70. The tax collected by the municipality is a percentage of the $70 – paid by the hotel. The remaining $30 goes to the OTC as their fee, which they lump together as “tax recovery charges and service fees.” The crux of the debate is whether this additional money should be taxed, and whether the fee is misrepresented to the customer as part of the advertised room rate.
The Triangle currently has the lowest hotel occupancy rate in the state at just over 35 percent occupancy through the second quarter of the year, based on estimates from Smith Travel Research. This is almost 10 percent less than Bristol, Virginia, which does not have an economy driven by tourism.
Since 2007, Williamsburg has been dead last in occupancy rates compared to all other localities in the state in the same period (see breakout box). The area localities have been suffering with low lodging tax revenues for years, and losing taxes on the fee could add up to significant losses since lodging taxes account for millions of dollars in revenue each year. For Williamsburg, occupancy taxes make up 15 percent of all the city’s tax revenues.
WYDaily did a previous story on the issue last year, which discussed several cases in various courts around the country in which localities are filing suits against groups of OTCs. Since then, OTCs have won some cases but have also lost some significant ones, including one in Columbus, Georgia. The state Supreme Court judge in the case ruled that OTCs should pay taxes to the city based on the advertised cost of a room.
At the time, OTCs “delisted” Columbus and began sending customers looking for rooms there to other nearby areas.
A 2009 Washington state consumer class action suit ended with a judgment in favor of the plaintiffs, which became the largest class action judgment in the state’s history. The judge found that $184.5 million in damages was warranted, but the final amount settled on was not disclosed. In June this year, Expedia began issuing online travel credits to people who traveled to Washington state between January 10, 2001 and June 11, 2008.
The Internet Travel Tax Fairness Act (ITTFA) is the bill the OTCs have been trying to push through Congress since last year to protect themselves (and their profits) from cases like those listed above. It would keep localities from taxing the OTC fees, would extend the tax exception to traditional travel agents who currently pay fees on retail room rates, and would keep jurisdictions from suing OTCs for additional taxes.
The companies have been sending out emails to customers recently, accusing localities of increasing travel costs and hurting local business and urging them to contact their senators to support the ITTFA legislation. They do not explain in the emails what prompted the bill, why local governments are upset or how their fee system works.
One email from Travelocity reads: “Local governments are threatening to raise your travel costs by adding new taxes on the fees you pay when you book hotel rooms through Travelocity and other online travel sites. We’re fighting to stop these politicians from raising taxes on your travel, but we need your help.”
The email goes on to say: “While families across the country are struggling to make ends meet, let alone afford their summer vacation, the last thing politicians should be doing is adding yet another tax on travel. If they succeed, not only will your travel costs increase, but your local businesses could be hurt as well.
“When taxes increase, individuals, families, and business travelers travel less. When these tourists stay home they don’t spend their hard earned dollars in your Main Street shops and businesses. That’s bad for jobs and for local economies.”
The three localities in the Triangle are part of the Virginia Municipal League, a group representing state municipalities, which, along with several other organizations like the American Hotel and Lodging Association, the National Association of Counties, the National League of Cities, the U.S. Conference of Mayors, the Federation of Tax Administrators and Destination Marketing Association International, have been lobbying congress to keep the ITTFA at bay.
In a joint letter to Congress expressing their concern over the proposed legislation, the groups write: “State and local governments are not proposing a new tax on internet commerce. Well before the establishment of OTCs, hotel occupancy taxes have been collected.”
They point out that these taxes are important revenue sources for and often fund tourism promotion, convention centers, and other local projects and government employees. “In these extremely difficult budget times when Congress is considering funding to aid local jurisdictions, taking away their taxing authority is counterproductive and damaging,” the letter reads.
“The result for hotels is that hotel channels are put at a competitive disadvantage against all third party intermediaries. Additionally, as local governments look to make up budget shortfalls and their taxing authority is preempted by federal legislation, they may be forced to levy additional taxes on constituents and businesses, including hotels, in their own jurisdictions.”
The letter concludes, “ITTFA merely shifts the OTCs’ tax burden onto others to the detriment of our communities and public sector jobs. No industry should be allowed to manipulate the tax code to secure a competitive advantage over hoteliers while simultaneously shortchanging cities.”
Hotels use these sites in order to fill otherwise vacant rooms. If the OTCs are cutting into their profits, why do hotels use them?
Williamsburg Hotel Motel Association President Chris Canavos says the sites offer brand recognition and give local hotels national exposure. He points out, “That’s their business model, and they gain ground when the market is weak… in depressed times, [using an OTC] gives me an advantage and helps fill empty rooms. Will I take $80, or nothing? In a destination like Williamsburg that’s not performing, these companies feed off it.”
He says if the market is better, the OTCs won’t get their reduced rate from hotels that are relatively full. “At the end of the day, hoteliers would prefer not to use them,” Canavos says.
But when asked if he thinks the fee should be taxed, he says, “Would that cause the destination to lose business? There could be collateral damage” if a bill such as ITTFA is passed.
Visit the American Hotel and Lodging Association website to see their perspective on the issue. Visit the OTC’s Interactive Travel Services Association website to read more about their position.