Press release from the Interactive Travel Services Association; March 28, 2012:
Legislation Proposed in the wake of Federal Court Ruling that Existing Law Does Not Apply to Travel Reservation Services
NASHVILLE, TN, March 28, 2012—In an attempt to impose new taxes after a recent U.S. District Court decision ruling interpreting existing law, Tennessee state Senator Doug Overbey and Representative Richard Montgomery have introduced legislation aimed at imposing a new tax on internet travel facilitation services to and within Tennessee. The Interactive Travel Services Association (ITSA), the voice for the online travel companies (OTCs) and global distribution systems (GDSs), expressed opposition to the legislators’ actions.
The basis of the new tax is an attempt to apply the state’s hotel occupancy tax to the service fees of traditional and online travel agents who facilitate reservations for Tennessee hotel room transactions, raising the cost of doing business and likely resulting in higher prices for consumers. Bill proponents claim, contrary to the findings of the court, that travel agents are buying blocks of hotel rooms “wholesale,” marking them up, selling them to customers for a much higher “retail” rate and pocketing tax dollars intended for the state.
A recent decision by the U.S. District Court for the Middle District of Tennessee affirmed what dozens of other court decisions around the country have concluded: that hotel occupancy taxes are written to apply to the rental rate that the hotel operator charges and collects, and do not apply to service fees, commissions or other charges related to hotel reservation expenses. The court also clearly found that online travel companies do not buy blocks of hotel rooms at wholesale.
Senator Overbey and Rep. Montgomery have introduced legislation that directly contradicts the decision by the District Court, which examined the issue over four years and determined that, “…there is no dispute that online travel companies (OTCs) perform no day-to-day ‘brick and mortar’ hotel functions.” Furthermore, court decisions and audits by state and local revenue agencies have found that OTCs properly remit all taxes owed to state and local governments.
State legislatures across the nation, such as those in Virginia, Texas, Pennsylvania, Utah, Oregon, Missouri and Massachusetts, have examined this very issue and overwhelmingly recognized that application of hotel occupancy tax to a travel facilitator makes the state less competitive for travel and tourism.
“Elected officials are often quick to enact travel taxes, thinking that they do not impact their constituents, but rather, nameless, faceless visitors who cannot do anything about it,” said Joseph Rubin, president of ITSA. “But Knoxville residents going to Nashville on business or to visit family in Chattanooga pay travel taxes just like out of state visitors do. In this economy, travelers are more price-sensitive than ever. Making Tennessee more expensive to visit will have the predictable effect of discouraging people from visiting Tennessee.”
“Tennessee hotel operators – including hundreds of independent properties –enter into contracts with online travel companies to promote their hotels to millions of online shoppers. The internet has allowed hotel operators of all sizes to have a truly global footprint, and online travel companies promote Tennessee tourism in numerous ways. These services help bring business to Tennessee that otherwise would not come to the state.”
The Tennessee U.S. District Court decision was quite clear in its February 21 opinion that OTCs do not buy or operate hotel rooms and there is no tax loophole. Rubin went on to say, “Local governments wasted taxpayer money pursuing litigation trying to collect this tax, and now elected officials are so intent on raising taxes that they are willing to ignore the factual findings of a court decision.”