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Oppose the Tax on Online Travel Companies!
An Open Letter to the Council of the District of Columbia
December 16, 2010
Dear Council Member:
On behalf of the National Taxpayers Union’s members in the District of Columbia, I urge you to reject the Payment of Full Hotel Taxes by Online Vendors Clarification Act of 2010 (District Council Bill 18-655). This legislation would impose a new tax on what the bill defines as remarketers, or online travel companies (OTCs) such as Expedia, which would threaten the District of Columbia’s important tourism sector. Instead of new taxes, the District should examine its existing programs to find savings.
Contrary to popular belief, OTCs such as Expedia, Orbitz, and Travelocity do not own or operate hotels. Instead, OTCs merely facilitate transactions between the hotels and customers, collecting a fee directly from the customer for the facilitation service, similar to the services provided by travel agents. Because OTCs neither possess nor maintain hotel rooms, they are beyond the scope of hotel occupancy taxes. Furthermore, the non-partisan, Washington, D.C.-based Tax Foundation and numerous courts that examined the issue have found no evidence that OTCs collect and “pocket” hotel taxes from customers.
As with OTC tax schemes elsewhere, the tax that would be imposed by District Council Bill 18-655 threatens the District’s important tourism sector. Further, there are doubts that a tax on OTCs will raise the projected revenues. Smaller hotels, such as bed-and-breakfasts, use OTCs to compete against the larger chain hotel operations. A tax on OTCs will divert bookings, from both large and small operators, to neighboring cities such as Arlington, Alexandria, and Bethesda, which will deprive the District of hotel tax revenue and badly needed economic activity that visitors to our nation’s capital provide. This is not idle speculation; to give just two examples, hotels in Columbus, Georgia and South San Francisco, California lost business after their governments imposed a tax on OTCs.
The time has come for the District Council to stop piling on more taxes, making job losses worse, and threatening an important part of the local economy to delay the inevitable necessary reforms to an unsustainable government. Just as hard-working Washingtonians have tightened their belts in the midst of this economic downturn, the Council should confront the tough decisions on spending rather than raising taxes. That vital process can move forward by rejecting the proposed tax on OTCs.