State legislators are going after travel agents – both brick and mortar businesses and online travel agents (OTA) – and proposing new taxes on service fees. The most common approach to increasing taxes on travel agents is by expanding sales tax or occupancy (hotel, lodging, bed, room) tax to include service fees on hotel bookings. Bills like these amount to a new tax on services, impacting many small businesses, and a tax increaseon hotel bookings that will make hotels more expensive and less competitive with neighboring states.
It has been said that when you tax something, you get less of it. Travel taxes in any form harm the travel and tourism economy.
When booking hotel rooms through a travel agent, whether online or in the community, the total amount a consumer pays is made up of three components:
- Negotiated room rate, set by the hotel,
- All applicable taxes on that room rate (including, in many places, sales and occupancy tax),
- Service fees charged by the travel agent.
SALES TAX: Goods, not services
- Most states do not impose sales tax on services. Proposals to expand sales tax to travel agent service fees represents a new tax on small business travel agents and in most states, a first step in expanding sales tax to services more broadly.
- Because travel agents already pay corporate income tax onthe service fees they charge their clients, this new tax will amount to a “double tax” for many in-state businesses who book hotel rooms for their clients, including travel agents, wedding planners, event planners, and tour operators.
OCCUPANCY TAX: Room rentals, not services
- Travel agents do not buy and sell hotels rooms. They are not wholesalers. OTAs facilitate transactions between travelers and hotels and charge a fee for that service.
- Courts in 23 states agree that OTAs do not operate hotels or resell hotels rooms as retailers, placing them outside the scope of occupancy taxes. Attempting to extend the occupancy tax to OTAs and other travel agents leads to unsuccessful lawsuits and the associate high costs, as well as negative impacts on the tourism industry.