ICMA and its Big 7 partners support the collection of taxes on hotel rooms booked through online travel companies (OTCs) at the full retail tax rate. With state and local finances facing budget shortfalls, it is important that they be able to collect this important tax revenue.
The issue
Online travel companies typically pay taxes only on the wholesale room rate they pay for a hotel room rather than the retail price that the customer pays. This results in lower tax remittance to state and local jurisdictions for rooms that are booked through OTCs rather than through a hotel direclty. OTCs are popular booking tools and this tax calculation practice is not only costly for state and local governments but puts the hotels themselves at a competitive disadvantage when attempting to market their own rooms.
State and local governments have challenged the preemption of tax payments on reservations purchased through OTCs in the courts. A current and full list of OTC litigation is available online.
Icma and big 7 outreach
ICMA and other Big 7 partners signed on to the following letter which was submitted to the U.S. Senate in January 2010
Letter to Senate in opposition of the preemption of state and local taxing authority over OTCs
legislative activity
While no federal legislation has been proposed on this issue, several state courts have ruled on this issue:
- Georgia Supreme Court – 2009 & 2011: This state’s highest court has now ruled twice that OTCs agreed to collect hotel taxes through their contracts with the hotels and by virtue of these agreements were duty bound to collect and remit hotel taxes on the retail price to the appropriate government entity;
- New York State District Court - 2010: A state district judge rejected as “baseless” and contrary to the plain language of enabling legislation the claim by OTCs that New York City had illegally passed a law to require OTCs to collect hotel tax on the entire amount paid by consumers to occupy hotel rooms;
- South Carolina Supreme Court - 2011: This state’s highest court held that an OTC owed tax on the total amount received from consumers in exchange for furnishing hotel accommodations, and further held that the tax was constitutionally imposed since the OTC used employees and representatives to enable the OTC to establish and maintain a market for selling rooms in the state;
- Tennessee Federal District Court - 2009: A judge denied the OTCs’ motion to dismiss because it was “clear that the drafters intended to tax the consideration paid by consumers for hotel rooms, and the ‘operator’ language is such that it applies to the [OTCs], regardless of the fact that the [OTCs] did not exist at the time that language was drafted";
- Texas Federal District Court - 2009: A jury entered a unanimous verdict that OTCs control the rooms they sell and that additional hotel taxes were due, finding in favor of over 170 Texas cities that have passed laws regarding hotel taxes with the same or similar language.
