An(other) Orwellian tax on consumers

That the US Congress' penchant for unintended irony is inexhaustible can be seen from its choice of names for bills. A recent entrant to that pantheon of hypocrisy is the "Marketplace Fairness Act" which seeks to "grant states the authority to compel online
and catalog retailers ("remote sellers"), no matter where they are
located, to collect sales tax at the time of a transaction – exactly
like local retailers are already required to do."

In terms of fairness to consumers, it falls miserably short while, as is typical of almost anything congress puts out, it panders to a group (in this case of largely brick and mortar retailers) in the name of fairness. Apart from laying unfair burdens on online (particularly smaller) retailers as it would require them to keep records and verify tax rates in jurisdictions beyond their physical location it displays a classic "sock-it-to-them-they-are-from-elsewhere" approach that is a favorite of jurisdictions. The latter use that distressingly often while seeking to implement ncreases in hotel occupancy taxes.

A segue to the foregoing by way of ill-conceived ideas and laws is the decade long battle in courts around the US by jurisdictions to force OTAs to pay the "full amount" of occupancy taxes. Judicial outcomes thus far have fallen on either of side of the divide although largely with the OTAs. That outcome may be unpalatable to hotels but rightly lays bare the money grab at the heart of the action on behalf of tax jurisdictions. 

Among the recent court decisions in favor of the latter is one made by a Texas District Judge where a ruling on a class-action case said "Expedia,
Priceline, Orbitz and Travelocity are among OTAs that owe 172 Texas
cities — including Dallas, Austin and San Antonio — more than $55
million in back taxes." Close on the heels of that decision was one in California that is more typical of the outcomes over the years. In the Golden state ruling, a Superior Court judge, hearing claims from the cities of Los
Angeles, Anaheim, Santa Monica, San Diego and San Francisco, issued a
summary judgment, holding that the defendants are not hotel operators
and are not subject to hotel occupancy taxes

While hotel owners and operators have long sought to use a "level the playing field" metaphor to curb the growing hold of OTAs on their inventories the battle ignores some basic notions of the agency agreement that underpins these commercial transactions. Few hoteliers disagree with the view that OTAs do not operate hotels nor resell rooms as "wholesalers" as in the pre-internet era.  What is not in doubt for anyone involved in the fracas is that taxing of services is not the norm.  A cursory look at the websites of any of the OTAs leaves little doubt that they offer a service.  To suggest that they are, principally, a purveyor of rooms is disingenous on the part of municipalities and hotel companies and injurious to commerce.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.