The Akron Legal News

Bill would require online hotel bookers to collect taxes based on advertised price

TIFFANY L. PARKS
Special to the Legal News
Published: June 3, 2015

While online travel companies are busy encouraging potential customers to name their own price for a hotel room or check out their top secret deals, a pair of state lawmakers are focused on changing the way hotel intermediaries collect taxes.

The sponsors of House Bill 150 don’t need the sea captain from Hotels.com commercials to point out the obvious: Many of Ohio’s laws for taxes on hotel rooms were written decades before the rise of the Internet and smartphone takeover.

HB 150 would require a hotel intermediary to collect sales or use taxes from a customer based on the full advertised price paid by the customer to the intermediary.

In contrast, under current standards, the tax is based on the portion of that price that represents amounts paid for the hotel stay.

“If the state of Ohio believes the original intent of the law was to tax the full retail room rate and that the citizens of Ohio are entitled to the full amount of tax on the hotel room, then the law must be updated,” Rep. Cheryl Grossman said.

Grossman, R-Grove City, is jointly sponsoring the bill with Rep. Gary Scherer, R-Circleville.

“For those of you who may be unfamiliar with booking hotel rooms online using Orbitz, Expedia or one of the many OTCs that exist today, customers go on the website and search for hotel rooms by city, select the room they want and click purchase to complete the transaction,” Grossman said, adding that OTCs are then able to calculate and remit sales and lodging taxes based on the discounted or wholesale cost of the room.

Meanwhile, rooms that are booked directly through a hotel or with a travel agent are taxed on the full checkout rate.

“The end result is the state and local communities lose out on millions of dollars of sales and lodging tax,” Grossman said.

In one example she presented to lawmakers, Grossman referenced a customer paying $110 for a room through both a travel website and a traditional method but noted that the travel site calculated taxes based off a room price of $80.

“The difference is often bundled in what the customer sees as a ‘taxes and fees’ category,” she said.

“You may be wondering how OTCs are able to calculate applicable taxes at the lower wholesale cost of the hotel room. The simple reason is Ohio’s lodging and sales tax statutes are outdated and were not written with online room bookings in mind.”

If signed into law, HB 150 would require a hotel intermediary to collect Ohio use tax if the intermediary arranges lodging at Ohio hotels.

The measure also would require a hotel intermediary to supply customers with itemized tax invoices before the end of a hotel stay.

The bill would absolve a hotel of liability for a hotel intermediary’s failure to collect or remit sales and use tax but would impose personal liability on a person required to remit or collect local lodging taxes and fails to do so.

Grossman said several communities in Ohio joined together to challenge OTCs on how they tax rooms but the 6th District Court ruled against the cities and found Ohio law needs to be modernized and the Ohio Revised Code needs to define OTCs for tax collection purposes.

“Another important aspect of HB 150 is language that ensures transparency when purchasing a room using an OTC. Customers who use OTCs typically see room prices based on the lower wholesale rate and when completing the purchase the price increases due to a “taxes and fees” component that is added to the bill,” she said.

“The consumer really has no way of knowing how much sales or use tax is collected and remitted on the room.”

Troy Flanagan, vice president of state and local government affairs for the American Hotel & Lodging Association, said the organization strongly supports closing the “unfair tax loophole exploited by online travel companies at the expense of Ohio taxpayers.”

“As in many states, consumers in Ohio are required to pay certain sales and occupancy taxes when they stay in a hotel. These taxes support infrastructure and tourism promotion, generate funding for event venue construction, as well as provide general revenue for the state and its counties,” he said.

“Online travel companies have taken (an) unorthodox approach in order to lower their tax bills, resulting in a loss of revenue for the state while placing brick-and-mortar hotels at a competitive disadvantage.”

Flanagan said HB 150 would merely remove ambiguity and clarify that there is tax parity between OTCs and hotels that sell their rooms directly.

“The ambiguity exists because when the codes were written, online commerce was not even conceived,” he said.

Signing the bill into law would not increase prices for consumers or otherwise discourage tourism in the state, Flanagan said.

“As has been noted by courts around the country, OTCs are already collecting from consumers the same total amount of money as hotels — they simply remit less in taxes,” he said.

In offering insight into the OTC industry, Scherer said Expedia was one of the original online hotel booking websites.

“Originally a division of Microsoft launched in 1996, Expedia was spun off in 1999 and began to acquire and add other products including Hotels.com and Hotwire.com,” he said, adding that Expedia purchased a majority stake in Trivago, a travel search engine service, in 2012.

Earlier this year, Expedia announced two other major acquisitions, agreeing to buy Travelocity from the Sabre Corporation for $280 million and in February bought Orbitz for $1.2 billion in cash.

“I reference these mergers and acquisitions just to give you some reference to the size and scope of these online travel companies and the profit potential to act as an online hotel intermediary,” Scherer said.

“Now mind you, I have no problem with large, multinational corporations, I just think they should play by the same rules as other businesses.”

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