FACT VS. FICTION: The Online Travel Companies Spin On The Real Story for Hoteliers

Transcription

1 FACT VS. FICTION: The Online Travel Companies Spin On The Real Story for Hoteliers Recently, a number of AH&LA members have received s from representatives of the online travel companies (OTC) about the proposed Internet Travel Tax Fairness Act (ITTFA) that Congress may consider this year. Once our members notified the association about these e mails, we strongly felt that a point by point refutation of what the OTCs have written was in order. The OTC s notes are a carefully worded dance around AH&LA s and the lodging industry s position, and we think our members deserve to read the entire story to stay fully informed about this dispute. The OTC s s: An Example Dear [hotelier], We ve always placed enormous value on our relationship with partners, and we think it is our strong relationship with you that has helped us reach out around the world to bring people to visit [your hotel]. Given this we were surprised to see you were one of the signatories on a statement opposing the Internet Travel Tax Fairness Act (ITTFA), federal legislation. This legislation is very important to us and our ability to support our joint efforts to market and to bring visitors to your property. Given the damage that could be done if this legislation is not passed, we think it s likely that you have not heard the full story on what the legislation is attempting to do. I ve outlined some of the key points below, and we are asking for the opportunity to discuss this more fully with you and your management team. But most importantly, we are asking you to reconsider your opposition to a piece of important legislation that will preserve the partnership we ve worked so hard to establish. We look forward to hearing from you. Sincerely, [representative of OTC] 1

2 AH&LA s Response To The OTC E mail and Other OTC Claims OTC Claim: 1) ITTFA does not create special tax treatment of [OTC] hotel bookings. AH&LA Response: FALSE. OTC Claim: ITTFA preserves the status quo. Hotel taxes do not apply to travel intermediary service fees charged by travel agents, tour operators and others. AH&LA Response: EVASIVE. It is not so much the status quo as it is the current practice of OTCs that choose to remit taxes on the discount rate. Again, the issue isn t whether they tax SERVICE fees, the issue is whether the amount collected in taxes and fees and retained by the OTCs is subject to OCCUPANCY taxes, as may tax jurisdictions claim. This is an issue left to the local jurisdictions and courts. OTC Claim: AH&LA falsely claims ITTFA would exempt all OTC bookings from any hotel tax. The claim is without merit. AH&LA Response: AH&LA noted that in some early versions of the ITTFA language, it was written in such a way that it could be interpreted as exempting the entire OTC transaction from taxation. Determining the impact has been difficult because the OTCs refused to share the evolving draft language for over six months and AH&LA had to base interpretations on versions it was able to obtain from other sources. In what the OTCs claim is the latest version that ambiguity appears to be cleared up. OTC Claim: ITTFA contains specific language making it clear that all hotel bookings regardless of channel remain subject to all applicable hotel taxes. AH&LA Response: EVASIVE. The OTCs are attempting to define what taxes are applicable. It is not a matter of which bookings, but instead on how much tax is collected and remitted on those bookings. AH&LA believes this should be determined at the local level and by courts, and has not taken a position. The legislation also contains language that bars hotels from the same tax treatment which means that the same room sold on the same day at the same rate would be subject to two different tax treatments depending on the channel. OTC Claim: 2) Lodging companies face no increase in taxation under ITTFA. AH&LA Response: EVASIVE. Although the language does not specifically state that taxes shall be raised on hotels, that will in all likelihood be the result 2

3 OTC Claim: States and localities have never applied hotel taxes to travel intermediary service fees. Therefore they face no loss of tax revenue under ITTFA. AH&LA Response: EVASIVE. The issue isn t whether they tax SERVICE fees; the issue is whether the amount collected and retained by the OTCs in taxes and fees are OCCUPANCY taxes (as many tax jurisdictions claim) based on what the guest paid as the room rate. This is an issue left to the local jurisdictions and courts. OTC Claim: Because ITTFA merely validates current tax practice, there will be no shortfall for cities to make up. AH&LA Response: It is not current tax practice it is the OTCs decision to remit only the tax it chooses. If cities believe that that amount is less than it should be, it is a budget shortfall. It is similar to a person claiming federal tax deductions that the IRS does not agree with the government sees a loss and it will seek to make up for it. Counter to the assertion, New York City clarified its ordinance (as are other jurisdictions) and is currently collecting taxes based on the rate paid by the guest. If ITTFA is enacted, it would preempt that ordinance and New York City would see an immediate loss of revenue. Further, ITTFA would allow traditional travel agents to enjoy the benefit of the new special tax preference. Currently, the taxes are collected and remitted on what the guest pays for a room in a traditional travel agent transaction. Thus, there would certainly be a very real loss from what is currently collected. OTC Claim: Travel intermediaries oppose increases in all tourism taxation and stand shoulder to shoulder with their hotel partners in opposing tax increases. AH&LA Response: It should be noted that travelers are charged the same amount. At issue is how much tax is remitted to the localities. AH&LA believes this should be determined at the local level and by courts (AH&LA has not taken a position on either side of this argument). It should be noted that hoteliers in Columbus, Georgia, don t feel the support of OTCs since the OTCs delisted every hotel in that city from the OTCs sites after the Supreme Court of Georgia found that the OTCs should remit occupancy taxes based on what the guest pays. 3

4 OTC Claim: 3) ITTFA protects lodging companies from adverse hotel tax laws. AH&LA Response: PATENTLY FALSE. OTC Claim: If localities are permitted to tax travel intermediary service fees, they may look to hotels to recover such taxes. AH&LA Response: Unfortunately, since hotels are located in taxing jurisdictions, they are subject to many taxes. This is precisely why AH&LA is strongly opposed to ITTFA. This point is that hotels will be targeted because they are in the tax jurisdictions. Again, it is not an issue of service fees but what jurisdictions consider as transactions subject to occupancy taxes. If jurisdictions are preempted from collecting what they consider to be all the taxes due on a transaction from an OTC that advertised the room and collected the payment, they will in all likelihood seek the tax from the hotel where the stay occurred. In fact, San Francisco, California, has made hotels jointly liable for all the tax on the amount the guest paid for the room. Since OTCs refuse to remit that amount and hotels are in the city s jurisdiction, the city expects hotels to make up the difference. OTC Claim: The city of South San Francisco recently changed their hotel tax laws to force hotels to collect and remit taxes on service fees charged by travel intermediaries. AH&LA Response: This California city sought to collect OCCUPANCY taxes based on the price the guest paid for the room and initially made the hotel and OTCs jointly liable for that amount. Since the OTCs refuse to remit taxes based on that amount, the city believed it could obtain the tax from the entity in its jurisdiction the hotel. Again, this is precisely why AH&LA is strongly opposed to ITTFA if localities are preempted from collecting all the taxes they believe are due, they will look to the hotel to make up the difference. The City of South San Francisco has since revisited that requirement, understanding the hotels do not receive that revenue. However, the City of San Francisco (not the same city) has recently sent a letter to hoteliers within that city and noted that it feels that hoteliers are jointly liable for remitted the occupancy tax based on the amount paid for a room by a guest. OTC Claim: Such laws impose a huge burden on hotels, as they would be required to collect tax on amounts they don t receive. AH&LA Response: This is the likely result if ITTFA is enacted tax jurisdictions will increase taxes on hotels to make up for the shortfall they see in occupancy taxes since they would be barred from collecting occupancy taxes from OTCs on what they believe is the proper rate. 4

5 OTC Claim: ITTFA will prevent enactment of such laws. AH&LA Response: UNTRUE. ITTFA only prevents local jurisdictions from collecting taxes on OTCs based on the room rate the guest paid for a hotel room. There is absolutely no protection for hotels in the legislation, nor could there be. Even if the legislation banned tax jurisdictions from collecting the difference at issue and banning any increases in occupancy taxes (a highly unlikely scenario), a jurisdiction could impose or raise any one of the hundreds of other taxable actions in hotel operations (valet, room service, parking, property, A/V, conference, meals, etc.) that could to make up for what jurisdictions perceive as a shortfall in what should be collected in occupancy taxes. OTC Claim: 4) States and localities face no loss of tax revenue under ITTFA. AH&LA Response: PATENTLY FALSE. OTC Claim: States and localities have never applied hotel taxes travel intermediary service fees and therefore face no loss of tax revenue. As a recent report by the non partisan, independent Tax Foundation found, claims of revenue losses are misplaced because the revenue was never to have been gained, so it cannot have been lost. AH&LA Response: EVASIVE and UNTRUE. The issue isn t whether they tax SERVICE fees, the issue is whether the amount collected and retained by the OTCs in taxes and fees are OCCUPANCY taxes (as many tax jurisdictions claim) based on what the guest paid as the room rate. This is an issue left to the local jurisdictions and courts. If cities believe that that amount is less than it should be, it IS a budget shortfall. It is similar to a person claiming federal tax deductions that the IRS does not agree with the government sees a loss and it will seek to make up for it. Further, ITTFA would allow traditional travel agents to enjoy the benefit of the new special tax preference. Currently, the taxes are collected and remitted on what the guest pays for a room in a traditional travel agent transaction. Thus, there would certainly be a very real loss from what is currently collected. Additionally, there are certain jurisdictions currently collecting on the retail rate (e.g., New York City) and this legislation would override their ordinances. OTC Claim: And while state and local governments may need additional revenues, that is irrelevant to whether it s appropriate to apply hotel taxes to travel intermediary service fees. The Tax Foundation found that far from leveling the playing field or collecting taxes already owed, recent state and local lawsuits against online travel companies [are attempts to] impose new taxes in a way not justified by the principles of sound tax policy. 5

6 AH&LA Response: The issue isn t whether they tax SERVICE fees, the issue is whether the amount collected and retained by the OTCs in taxes and fees are OCCUPANCY taxes (as many tax jurisdictions claim) based on what the guest paid as the room rate. This is an issue left to the local jurisdictions and courts. Occupancy tax policies should be left to the local jurisdictions to determine. New taxes and tax increases are constantly being implemented. While many may not like it, this is the system we have. Further, there are few other issues as local as occupancy tax policy. To have the federal government micromanage to that degree is disturbing. This isn't about new taxes. This is about what is subject to occupancy tax and who gets to keep the revenue derived from online booking transactions. Many jurisdictions allege that money collected and kept by the OTCs rather than remitted to the jurisdictions is occupancy tax revenue. OTC Claim: The report also concluded that proposed federal legislation would halt this predation and preserve the status quo of hotel occupancy taxes based only on hotel occupancy, not other services. AH&LA Response: Again, it isn t so much the status quo as it is the practice chosen by the OTCs. Defining occupancy vs. service in tax policy should be left to local jurisdictions and courts. If definitions such as this were determined by those subject to taxes, many things now taxable would suddenly become services. OTC Claim: 5) OTCs are not collecting taxes that are not being remitted. AH&LA Response: AH&LA NOT TAKING POSITION. OTC Claim: OTCs collect tax recovery charge only on rent received by a hotel and OTCs remit all taxes they collect. AH&LA Response: AH&LA does not take a position one way or the other on this point. It should be left to state and local jurisdictions and courts to determine. OTC Claim: There have been over 50 lawsuits filed, most of which make the claim that OTCs are collecting tax based on the retail rate, but remitting tax based on the wholesale rate and are pocketing the difference. 6

7 AH&LA Response: This is merely a statement on what cities are alleging. AH&LA does not take a position one way or the other on this point. It should be left to state and local jurisdictions and courts to determine. OTC Claim: Despite years of litigation and boxes of discovery and numerous depositions, no court has ever found the claim to be true. Indeed, the two courts who have looked most exhaustively at the issue, Columbus, Georgia, and San Antonio, Texas, have both concluded the claim is without merit. AH&LA Response: UNTRUE. A class action suit against Expedia was based on this very point. A Washington State court issued a summary judgment against Expedia because the tax amount paid by consumers was overstated by Expedia. The judgment noted that in trying to explain why the amount it retained was a service fee, Expedia offered no clear or otherwise intelligible explanation. The judgment against Expedia was the largest class action in Washington State s history. AH&LA does not take a position one way or the other on this point. It should be left to state and local jurisdictions and courts to determine. OTC Claim: 6) Courts are increasingly ruling in favor of OTCs. AH&LA Response: AH&LA NOT TAKING POSITION. OTC Claim: Six federal courts have now ruled that travel intermediary service fees are not subject to hotel occupancy taxes. This includes courts in Orange, Texas; Pitt County, North Carolina, Louisville, Kentucky; Columbus, Ohio; and the 4th and 6th Circuit Courts of Appeal. AH&LA Response: AH&LA does not take a position one way or the other on this point. It should be left to state and local jurisdictions and courts to determine. Many of these cases are being decided upon the way specific ordinances are written. Since they were written well before the creation of the Internet, the language and its application is subject to interpretation (hence the court cases). Many localities are now updating their ordinances to clarity their intent and application. The legislation isn t as much about the court cases as it is about insulating OTCs from occupancy taxes in clarified local ordinances. If the issue was only about the court cases they are winning there is no need for federal intervention. OTC Claim: Similarly, state courts around the country are ruling in favor of online travel companies. Most recently, a superior court judge in Los Angeles County held that travel intermediary service fees are not subject to hotel occupancy taxes. 7

8 AH&LA Response: AH&LA does not take a position one way or the other on this point. It should be left to state and local jurisdictions and courts to determine. Many of these cases are being decided upon the way specific ordinances are written. Since they were written well before the creation of the Internet, the language and its application is subject to interpretation (hence the court cases). Many localities are now updating their ordinances to clarity their intent and application. The legislation isn t as much about the court cases as it is about insulating OTCs from occupancy taxes in clarified local ordinances. If the issue was only about the court cases they are winning there is no need for federal intervention. OTC Claim: Nevertheless, legislation is critical to establish a consistent national standard that ensures a workable tax framework. AH&LA Response: Occupancy taxes are a local matter, not a federal matter. ITTFA is not about establishing a national standard it is about the creation of a unique federal tax preference for OTCs. Hotels throughout the country comply with the myriad of taxes and filing requirements of local jurisdictions. In fact, OTCs know full well what local tax rates are they merely want to remit based on the discounted rate rather than what the guest paid for the room. If traditional hotels, from mom and pop bed and breakfasts to multinational chains can manage to comply with these laws, it is clear that highly sophisticated technology OTCs can as well (especially since hotels inform them what the rates are). Background: The OTC s Arguments: 1. ITTFA does not create special tax treatment of intermediary hotel bookings. ITTFA preserves the status quo. Hotel taxes do not apply to travel intermediary service fees charged by travel agents, tour operators and others. AH&LA falsely claims ITTFA would exempt all intermediary bookings from any hotel tax. This is not true. ITTFA contains specific language making it clear that all hotel bookings regardless of channel remain subject to all applicable hotel taxes. 2. Lodging companies face no increase in taxation under ITTFA. States and localities have never applied hotel taxes to travel intermediary service fees. Therefore, they face no loss of tax revenue under ITTFA. Because ITTFA merely validates current tax practice, there will be no shortfall for cities to make up. 8

9 Travel intermediaries oppose increases in all tourism taxation and stand shoulder to shoulder with their hotel partners in opposing tax increases. 3. ITTFA protects lodging companies from adverse hotel tax laws. If localities are permitted to tax travel intermediary service fees, they may look to hotels to recover such taxes. The city of South San Francisco recently changed its hotel tax laws to force hotels to collect and remit taxes on service fees charged by travel intermediaries. Such laws impose a huge burden on hotels, as they would be required to collect tax on amounts they do not receive. ITTFA will prevent enactment of such laws. 4. States and localities face no loss of tax revenue under ITTFA. States and localities have never applied hotel taxes travel intermediary service fees and therefore face no loss of tax revenue. As a recent report by the non partisan, independent Tax Foundation found, claims of revenue losses are misplaced because the revenue was never to have been gained, so it cannot have been lost. And while state and local governments may need additional revenues, that is irrelevant to whether it is appropriate to apply hotel taxes to travel intermediary service fees. The Tax Foundation found that far from leveling the playing field or collecting taxes already owed, recent state and local lawsuits against online travel companies [are attempts to] impose new taxes in a way not justified by the principles of sound tax policy. The report also concluded that proposed federal legislation would halt this predation and preserve the status quo of hotel occupancy taxes based only on hotel occupancy, not other services. 5. OTCs are not collecting taxes that are not being remitted. OTCs collect tax recovery charge only on rent received by a hotel and OTCs remit all taxes they collect. There have been over 50 lawsuits filed, most of which make the claim that OTCs are collecting tax based on the retail rate, but remitting tax based on the wholesale rate and are pocketing the difference. 9

10 Despite years of litigation and boxes of discovery and numerous depositions, no court has ever found the claim to be true. Indeed, the two courts who have looked most exhaustively at the issue, Columbus, Georgia, and San Antonio, Texas, have both concluded the claim is without merit. 6. Courts are increasingly ruling in favor of OTCs. Six federal courts have now ruled that travel intermediary service fees are not subject to hotel occupancy taxes. This includes courts in Orange, Texas; Pitt County, North Carolina, Louisville, Kentucky; Columbus, Ohio; and the 4th and 6th Circuit Courts of Appeal. Similarly, state courts around the country are ruling in favor of online travel companies. Most recently, a superior court judge in Los Angeles County held that travel intermediary service fees are not subject to hotel occupancy taxes. Nevertheless, legislation is critical to establish a consistent national standard that ensures a workable tax framework. (April 2010) 10