The District is due millions from online travel agencies for the untaxed markups they charge on city hotel rooms booked for consumers, D.C. Council members claim, and recently introduced legislation would require the industry to pay up.
The bill, introduced by at-large Councilman Michael Brown, would make the online travel industry fork over millions of tax dollars, upward of $10 million a year, the District claims it is owed. Numerous municipalities across the country have tried the same thing and most have failed, often through the courts after the travel industry files suit.
New York City’s policy, enacted last June, is the subject of a lawsuit filed by companies such as Expedia, Travelocity.com, Hotels.com, and Orbitz. The District, if it adopts a similar law, would almost certainly face a similar challenge — plus threats from the industry to reduce bookings or even delist D.C. hotels.
Online travel companies buy rooms directly from hotels at wholesale prices, and then resell those rooms to consumers with a markup. If a person rents a room through an online booking service for $200, but the agent bought that room for $150, then the District collects its 14.5 percent hotel occupancy tax only on the $150.
The $50 “service charge,” as the industry calls it, is untaxed.
“As the number of consumers booking through online travel companies increases, if these companies are allowed to continue to circumvent their full tax liability the city will lose more than just tax revenue,” Brown said.
The legislation “makes it clear that the full tax is owed to the city for the full amount of charge to the customer,” Brown said. The net effect to District coffers, he projected, would be $6 million to $10 million more annually.
Andrew Weinstein, spokesman for the D.C.-based Interactive Travel Services Association, said court precedent is in the industry’s favor. Last week, for example, a Los Angeles Superior Court judge ruled that online travel companies do not owe hotel occupancy taxes to the city of Anaheim. Booking agents, the judge reasoned, do not owe because they neither manage nor operate hotels.
“The legal track record of the industry is very strong in this area,” Weinstein said.
Brown suggested that D.C. take legal action to collect back taxes and penalties totaling about $200 million. But Attorney General Peter Nickles told The Examiner that there isn’t enough legal precedent to justify plunging the District into a costly lawsuit. If municipalities start winning in court, Nickles said, then the District might be able to take action administratively.
Maryland and Virginia have not addressed this issue.
