A Mess of Millions: OTAs and The Truth Behind Their Unpaid Hotel Taxes

April 7, 2015 • By
tax The OTAs have been spending a lot of time in the courtroom lately. What’s behind the courtroom drama? Unpaid hotel taxes. The figures are eye-opening, the depth is staggering. Here is the shocking truth surrounding the striking tax disparity facing our industry:

OTAs are choosing how much to shortchange the Government

Online travel agencies and companies currently calculate local and state hotel occupancy taxes by the net amount they pay to the hotel, NOT the higher amount they pull in from a customer for that room. In other words, they aren’t paying taxes on their markup because they claim that the transaction did not occur in the State where the hotel is located.. their position is that the transactions occur in tax-free cyberspace! The result? Local and state jurisdictions collect lower taxes for the rooms booked thru an OTA, than from a hotel. And, OTAs are pocketing the full difference. Amplifying their revenues and enabling them to continue to extend their domination over hotel marketers seeking to increase direct revenues.

OTAS are aiming for Federal exemption from local tax laws

Jurisdictions across the country have become aware of this OTA competitive advantage and the unpaid tax revenue. Lawsuits have been filed against the OTAs from Hawaii to Florida. And, in response, these travel agencies are proposing legislation that would protect their tax practices by naming it as a legitimate tax exemption, compliments of a federal preemption of local and state authority.

The numbers start small, but add up to a mammoth figure

The states’ lawsuits are trying to grab back what basically amounts to a few dollars per room night. However, those small numbers add up. Together, OTAs have suppressed local and state government receipts up to $396 million each year, according to the Washington DC-based Center for Budget and Policy Priorities. Meanwhile, the largest online travel sites have seen their revenues grow by up to 70 percent.

Lawsuits are heating up

The City of Los Angeles was the first to file a room-tax suit in 2004. Since then, dozens of municipalities stretching across the country have filed similar suits. In the past six years, Oregon, New York and Washington, DC, have amended their hotel tax regulations that clarify OTAs DO owe taxes on the retail rates they charge to customers, not the wholesale rate they pay to the hotel. (See where other states stand here). Without federal legislation on the matter, there’s no end in sight to the lawsuits by cities, counties, states, consumers and towns, as well as enforcement actions by numerous tax authorities and audits.

Expedia’s current tax bill

The leader in U.S. online travel bookings, Expedia, is currently facing a hotel tax bill of more than $800 million if it loses all of its appeals. This figure is how much Expedia would owe the scores of U.S. county and city governments in unpaid tax payments across a decade, according to tax-revenue records and lawsuit reviews. Let’s all stay on top of this issue, especially when lawsuits are filed against these OTCs by our local cities or states. Track the courts, media outlets and state legislatures by going to Hotel Tax Fairness.