The San Francisco Chronicle reports on a ruling by a federal judge allowing a lawsuit filed on behalf of more than 500 Georgia cities and counties to proceed. The plaintiffs included several counties and cities in the state while the defendants are online hotel booking sites including prominent names like Expedia and Priceline. Similar to pending lawsuits in other jurisdictions such as the common pleas court in Philadelphia and closely watched not only by the affected parties but also hotel companies, big and small, the issue has implications – principally for the resellers but also for hotels and, of course, the consumer. The idea behind the lawsuits is that the online resellers – which is what they really are – are getting away with not paying taxes on the ostensible “fee” they tag on to the discounted price they obtain the hotel room for.
That jurisdictions are more likely than not to dissipate the new found taxes is a given (and another matter for discussion). But, in this instance, they most likely have a case against the online biggies. Much like resellers are required to pay sales taxes on inventory purchased that is then resold (the room inventory is essentially “consumed internally” ), states have right to treat the internally consumed property (rooms) as if it was sold. The argument these are wholesalers of yore also does not hold – those businesses package rooms with other travel components and have specific breakdowns for each. How will this affect the customer?. It is axiomatic that all taxes are passed on to a customer and that’s necessarily a bad outcome for business (hotels). A shake-up in pricing (and distribution), however mild, is on the cards.