DC Reserves the Right for a Better Hotel (Tax) Deal

Online websites such as Priceline, Expedia and Travelocity offer bargains for travelers. But they’re not such a good deal for the District and other hospitality-focused cities and states. That’s because when you reserve a hotel room through these online travel companies, they avoid paying a share of the state and local taxes sales taxes they owe on the rooms they book, thereby depriving local jurisdictions of this revenue.

The District has taken action to stop this unfair practice. The DC Council took a step this week to join other cities and states eager to collect their share of hotel taxes from online travel companies. With the recession continuing to batter the city’s finances, this move came none too soon.

How does this tax avoidance scheme work? Let’s say you’re willing to spend $200 a night. If you book a room directly with a hotel, you’ll pay the local hotel tax on $200. But that’s not true for the online travel companies. Since they pay a discounted rate for the room’let’s say they pay $150 but charge you $200’they only pay tax on three-quarters of the total room rate. They pocket the $50 difference as a broker’s fee and do not pay taxes on it.

Many states and cities argue that the tax should apply to the online retail price of the room, and that the online companies owe tax on the so-called “broker’s fee.” New York, for example, has passed laws to make clear that taxes are due on the full room charge paid by the consumer. Some others are suing the online travel sites for back taxes.

The Fenty Administration has not taken legal action, but this week the DC Council took an important step to make sure we at least collect full hotel taxes going forward. A bill to do that was introduced by Council members Michael Brown (I-At-Large), Jack Evans (D-Ward 2), and Kwame Brown (D-At-Large) on February 2, and six other members co-sponsored the legislation.

This is a good step for the District. DC’s heavy reliance on tourism makes it especially important that we collect all the hotel taxes due to us.

Like savvy shoppers, DC needs to get the best hotel deal it can.