Hotel Tax Question Hangs Over Online Travel Agencies

Should hotel taxes be based on the amount the traveler pays or the amount the hotel collects?

The question has been debated with increasing furor as the economy has deteriorated, and a recent development in California is raising the heat. A ruling at an administrative hearing, now being appealed, awards $21.3 million to the city of Anaheim from several online travel agencies, including Expedia, Orbitz, Travelocity and Priceline.

Online travel agencies pay wholesale prices for blocks of rooms and charge retail prices to consumers. Occupancy taxes are paid on the wholesale price. It  has long been this way, even in the days of traditional off-line travel agencies, although questions have been raised about it for years.

So if you pay Priceline $100 for a room and Priceline pays the hotel $80, the local hotel tax of 10 percent yields $8 in taxes. But the municipality wants 10 percent on the $100 you paid, for a total of $10.

I’m thinking it all comes down to how you define that $20 difference between what you paid Priceline and what Priceline paid the hotel. Was it the retail cost of the room or a fee paid to the travel agency?

It makes my head hurt just thinking about it. All I can figure is that the bottom line is simple. Municipalities need the cash, so travelers will end up paying this additional tax through the travel agency, or residents will pay it through their municipal taxes.

The New York Times has a thorough explanation of all this if you want to figure it all out.

Let me know what you conclude.


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