You may have heard about the pending lawsuits between online travel sites such as Expedia and Hotwire, and various cities who feel they are evading taxes. Which sounds like — and is — a complicated and perhaps arcane issue.
But the end result may affect millions of travelers.
As the San Francisco Chronicle explains it, the basic issue is what rate should these companies use as their taxable base. Here’s an example from the Chronicle.
The Hilton San Francisco, say, offers a block of rooms to Expedia at $150 each. Expedia sells them to its customers for $200 each, remitting to the Hilton the $150, plus San Francisco’s 14 percent hotel tax on $150, which it adds to the customer’s bill. But, according to the tax collector, Expedia also owes, and has refused to pay for the past several years, the 14 percent tax on the $50 it has netted free and clear. Which currently amounts to $32 million.
Since many online sites work the same way, they buy some rooms in bulk and add their own markup, this could end up affecting a whole lot of consumers. And since hotel tax is non-trivial — usually over ten percent and in many cases close to fifteen percent — if the dispute is settled in favor of the cities, this will almost certainly mean an accompanying increase in consumer costs.
On the other hand, those who live in a tourist market, may find their city finances improved which just might mean the city doesn’t hike other taxes.
One way or another, there are too many millions of dollars involved for the argument to just disappear. Whichever way the decision goes, it’s hard to imagine car rental rates won’t be next. And perhaps airline and tour packages. Stay tuned.
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