The Arlington County Board wants the General Assembly to rewrite the rules for state and local hotel taxes so the county can recoup millions of tax dollars its says it’s losing to online travel companies like Expedia, Orbitz and Travelocity. The online travel companies pay occupancy taxes only on the wholesale room price they negotiate with hotels. Local governments argue that the companies should pay local taxes on the room’s full retail value — the final price the customer pays for the room when booking online.
Virginia loses more than $30 million in tax revenue a year to the practice, according to Arlington County Treasurer Frank O’Leary. For Arlington County, the change would generate another $2 million each year.
“It’s just wrong, it’s basically just wrong,” said state Sen. Mary Margaret Whipple, who will introduce legislation in January to change the tax rules. “They’re not paying the full tax, and the consumer doesn’t know it.”
Officials say the additional hotel taxes would be used to promote local tourism.
Online travel companies argue that they never actually own the rooms, but simply negotiate the sale of rooms through their online booking services.
Any revenue they gain is considered a service fee, not rent, and isn’t subject to state and local taxing authority, according to the Interactive Travel Services Association.
The fight between the travel companies and local governments dates back to a 2005 lawsuit filed by a Los Angeles city attorney. Since then, numerous lawsuits have been filed in cities and counties, culminating with a lawsuit filed by the state of Florida against Expedia and Orbitz in 2009.
However, a win in court doesn’t always mean a win for local governments. After Columbus, Ga., won its case against the travel companies in the state’s Supreme Court, several Web sites “delisted” the city from their search engines.
The city cried foul, but travel companies said it was simply a business decision — thanks to the new tax, revenue from sales in the city weren’t high enough to warrant doing business there.
Whipple introduced a bill in the Virginia General Assembly this year that would have changed the hotel-tax rules. It passed the Democratic-controlled Senate but failed in the Republican-run House. She said she would reintroduce the measure when the legislature reconvenes in January.
Meanwhile, online travel agencies are lobbying Congress for national legislation that would exempt them from local taxes.
