KEY MESSAGES

Online travel agencies (OTAs) need to play by the rules and pay their fair share of state/local taxes.

• In many jurisdictions, OTAs do not remit occupancy taxes on the full amount consumers pay; rather they remit taxes only on the portion of the rate that OTAs pay to hotels --- meaning the OTAs pocket the difference. Hotels, on the other hand, remit taxes based on the full amount paid by the customer.
• They are robbing cities and states of much needed tax revenue.
• As a result, hotels, which are often locally owned, are taxed at a higher rate than the OTAs for the same type of room, sold for the same amount, on the same day – identical transactions.  That doesn’t make any sense.

Local communities are losing out on revenue needed for infrastructure, law enforcement and other priorities, and the burden to pay for these priorities falls on the taxpayers.

• States and localities throughout the country have argued that OTAs are not remitting taxes at the appropriate level, and have taken action both legislatively and in court.
• The National Conference of State Legislatures also has officially recommended that states consider clarifying their laws to ensure that OTAs are paying the full amount.

OTAs argument to not pay their fair of taxes doesn’t reflect reality. 

• Many OTAs argue that part of the price paid by customers is the OTA service fee, and so the occupancy tax should not apply to that amount, but that assessment does not reflect reality. Hotels take the same steps, and incur the same costs, in marketing and selling a hotel room to the public through a hotel website or other avenues, as the OTAs do in selling a room. The OTAs are simply a different channel of distribution, and should not be taxed at a different rate.

When it comes to paying a fair share of taxes, we cannot and should not pick winners and losers.

• As long as tax laws or enforcement continue to illogically pick winners and losers in the travel industry, taxpayers will continue to be the victims.
• We should clarify our laws so that identical transactions are taxed equally, and OTAs pay what they really owe already.
• This is not a new tax, this is closing a loophole that was never intended when the tax laws were written.

ISSUE BACKGROUND

Online travel agencies (OTAs) typically remit occupancy taxes based only on the portion of the sales price that the OTAs pay back to hotels, and not on the full amount paid by hotel guests when purchasing the room. Hotels, however, apply the occupancy tax rate to the full price paid by the consumers.

As a result, dozens of cities and states have sued the OTAs to recover the lost revenue, but unfortunately, the courts often have not ruled in the local jurisdiction’s favor. To address this discrepancy, some states have enacted legislation to close this OTA tax loophole.

Further, the disclosure of these occupancy taxes is often done in a manner that masks the collection of the OTA’s service fees by lumping the taxes and service fees together. As a result, consumers do not know whether their money is going to the OTAs or to local jurisdictions. In fact, litigation in Washington State found this practice to be deceptive to consumers in cases that were settled for $129 million in damages paid by the OTAs.