With April 15 fast approaching, here’s something for the traveling public to ponder: If we pay all of the taxes we owe the government, shouldn’t online travel agencies?
For years, companies like Expedia, Orbitz and Travelocity have paid hotel taxes based on a lower wholesale rate, not the retail price they charged customers. Cities have cried foul, there have been lawsuits, and yesterday, Anaheim, Calif., ordered the online agents to pay $21 million in back taxes.
This is an important issue to Anaheim. Hotel taxes are its largest revenue provider, and it expects to see at least a 5 percent drop in tax collections in 2009.
If you said “who cares,” you’re probably in the majority. That’s probably because it’s difficult to understand what online travel agents are doing here.
Blogger Jeanne Leblanc has a good explanation on her blog.
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?
From a city’s point of view, this is an open-and-shut case. If I paid $100 for a room, it should reasonably expect $10.
If the online travel agencies want to define their $20 difference as a fee, that’s fine. Let them clearly disclose in their room rate what they’ve paid the hotel and what you’re paying as a fee. That might be a good way to counter the arguments made by cities.
But that’s not going to happen. If people saw the wholesale rate paid by online travel agencies, they’d riot. (I know. I’ve dealt with customers who had inadvertently seen the wholesale rate. Not a pretty picture.)
This could get interesting.
