Oppose the Tax on Online Travel Companies!

DearCouncil Member:

     On behalf of the National Taxpayers Union’s members in the District ofColumbia, I urge you to reject the Payment of Full Hotel Taxes by OnlineVendors Clarification Act of 2010 (District Council Bill 18-655). Thislegislation would impose a new tax on what the bill defines as remarketers, oronline travel companies (OTCs) such as Expedia, which would threaten theDistrict of Columbia’s important tourism sector. Instead of new taxes, theDistrict should examine its existing programs to find savings.

     Contrary to popular belief, OTCs such as Expedia, Orbitz, and Travelocity donot own or operate hotels. Instead, OTCs merely facilitate transactions betweenthe hotels and customers, collecting a fee directly from the customer for thefacilitation service, similar to the services provided by travel agents.Because OTCs neither possess nor maintain hotel rooms, they are beyond thescope of hotel occupancy taxes. Furthermore, the non-partisan, Washington,D.C.-based Tax Foundation and numerous courts that examined the issue havefound no evidence that OTCs collect and “pocket” hotel taxes from customers.

     As with OTC tax schemes elsewhere, the tax that would be imposed by DistrictCouncil Bill 18-655 threatens the District’s important tourism sector. Further,there are doubts that a tax on OTCs will raise the projected revenues. Smallerhotels, such as bed-and-breakfasts, use OTCs to compete against the largerchain hotel operations. A tax on OTCs will divert bookings, from both large andsmall operators, to neighboring cities such as Arlington, Alexandria, andBethesda, which will deprive the District of hotel tax revenue and badly neededeconomic activity that visitors to our nation’s capital provide. This is notidle speculation; to give just two examples, hotels in Columbus, Georgia andSouth San Francisco, California lost business after their governments imposed atax on OTCs.

     The time has come for the District Council to stop piling on moretaxes, making job losses worse, and threatening an important part of the localeconomy to delay the inevitable necessary reforms to an unsustainablegovernment. Just as hard-working Washingtonians have tightened their belts inthe midst of this economic downturn, the Council should confront the toughdecisions on spending rather than raising taxes. That vital process can moveforward by rejecting the proposed tax on OTCs.


State Government Affairs Manager