Tax Law

What Occupancy Taxes Must Internet Travel Reservation Companies Pay?

Many state and local transient occupancy tax ordinances were enacted before the introduction of the internet, or at least before online travel reservations became popular. While the language of occupancy tax ordinances varies by state or locality, the ordinances generally focus on the obligations of hotel owners, operators and managers, or sellers and resellers of hotel rooms, to collect occupancy taxes from the customer and remit the tax to the local taxing authority.
Internet travel reservation companies like, Expedia, Travelocity, and Hotwire, negotiate with hotels for discounted hotel room rates. They then offer bookings at the hotels to internet customers at marked up rates, accompanied by service charges. Currently, these internet companies collect and remit occupancy tax based on the discounted rate they negotiate with the hotel, rather than the marked up rate they ultimately charge the customer.
The internet travel companies argue they are not hotel operators, nor resellers of hotel rooms, and as a result are not liable for occupancy tax on the full amount they charge the customer. They say that they are intermediaries who facilitate bookings, and not agents of the hotels or the customers. 
Some cities are revising their occupancy tax ordinances to clearly subject internet travel companies to occupancy tax. What do you think: Should internet travel companies be held responsible for occupancy tax obligations based on the full amount they charge customers for a hotel room booking?
  • A great deal of money is falling through the cracks, and the ox being gored is city government.  A lawsuit filed by Findlay, Ohio in 2005 and scheduled for trial next year maintains that online reservation sites owed more than $5 million to local governments across the state. Some sources say that the figure is closer to $9 million at this point.  About a dozen Ohio cities have joined the suit.  Currently, online hotel bookings approximate 10 percent of total reservations, and the volume is growing.

    As Deanne Morton points out, travel sites assert that they are merely intermediaries - not agents of hotels or guests who place their reservations.  Art Sackler, executive director of the Interactive Travel Services Association claims that cities filing suits against online reservation sites are essentially vacuous, with no foundation in fact or in law.