The War on Vacation
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Taxing authorities are coming after online travel agencies on what some critics are dubbing the war on vacation.

The rise of so many online booking companies – think Expedia, Travelocity, Priceline, etc. – has been a boon for consumers, as their growth has resulted in more price competition among tourist destinations. Because it’s easier to search for the various hotels and resorts at which you can stay online, those places have become more aggressive in their pricing.

But, as usual, the taxman has come looking for a bigger piece of the pie. State and local authorities in about 35 states have filed lawsuits in recent years against online travel agencies, claiming those businesses don’t pay enough in hotel occupancy taxes. The taxers argue the agencies exploit an artificial advantage over traditional brick-and-mortar travel agencies.

Here’s their argument: when a customer rents a hotel room for a night for $200 and the tax rate is 10 percent they’d pay $20 in taxes. If a site like Orbitz is able to use its market pull to get the room for $180 and pass that on to the customer, the tax rate would be reduced to $18. Orbitz and its ilk keep a percentage of the non-taxed money that goes to the hotel in the form of a service fee.

But the taxers argue online travel agencies should have to cough up some of that service fee to make up the difference in taxes. However, these businesses truly provide a service, matching travel-eager consumers with hotels eager to fill all of their hotel rooms, and shouldn’t be singled out due to their “middle-men” status. And with most taxes or fees, the costs would likely just be passed on to customers.

Fortunately, courts have largely sided for online travel agencies in these lawsuits, ruling that hotel occupancy taxes don’t apply in this situation, often because they aren’t the owners or operators of the accommodations.

“It is in the nation’s interest and the interest of each state and municipality to have a vibrant and dynamic travel industry,” wrote the Tax Foundation. “Unpredictable and unaccountable taxes are a hindrance to that.”

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