Editorial Argues Online Travel Companies Should Pay Their Fair Share

An Editorial in the Baltimore Sun supports “leveling the playing field” when it comes to taxes remitted on hotel rooms booked through online travel companies (OTC). At issue, is whether the taxes remitted on hotel rooms should be based on the wholesale price the OTC paid for the room or the retail price charged to the hotel guest. The Editorial argues that these taxes should be imposed on the retail price of the room.

Imagine if a discount retailer, a Costco or Sam’s Club or the equivalent, bought excess inventory from a manufacturer and then sold those items at a higher price. How would Maryland’s sales tax be applied when the goods were sold to actual customers — toward the wholesale price or the retail? That might be the easiest tax question ever posed: Of course it would be applied to the retail price, as it is every day in every store in this state.

Yet online travel companies, Travelocity, Expedia, Orbitz and Priceline to name the most prominent examples, don’t see it that way. When they book blocks of hotel rooms at a discount rate and resell them to online customers, they’ve applied Maryland’s sales tax to their wholesale purchase price, not their retail sales price.

Legislation introduced this session by Senator Richard Madaleno, SB 190, would address this issue and require the States Sales and Use Tax to be remitted on the retail price of the room.  MACo testified at the hearing stating it would support amendments to extend this same principle to any local hotel tax. Baltimore City and Baltimore, Montgomery, and Worcester counties have sued the OTCs over the definition of taxable price and have reached settlement agreements with the various OTCs regarding unpaid taxes.

However, the arguments are not that simple.

…online travel companies have been portraying Senator Madaleno’s measure as a tax increase since it would, after all, raise what they pay in taxes and potentially cause their customers to pay more to book hotel rooms if they pass those charges along.

As the editorial correctly points out,

That kind of short-sighted view is actually anti-business, as it puts actual hotels and motels at a disadvantage since they have no tax loophole — or at least perceived tax loophole — to inflate their profits. Those are companies that are invested in Maryland, pay their taxes, support their employees and contribute to communities.