NCPA - National Center for Policy Analysis

New Tax Would Increase Travel Costs

February 17, 2014

Tax advocates are looking to impose hotel occupancy taxes on online travel sites' service fees, says Patrick Gleason, director of state affairs at Americans for Tax Reform.

Online travel websites act as third party facilitators, enabling travelers to book a hotel room. Travelers book and pay for a room through the third party site, which also collects a service fee. All hotel room rates are subject to local occupancy taxes and other fees, but the travel site service fee is not subject to such a tax. Some lawmakers are looking to extend the hotel occupancy tax beyond the room rate and tax that service fee as well.

These new taxes, and associated compliance expenses, are a bad idea and would only increase costs for consumers and travelers.

  • In part, the idea is that imposing taxes on nonresidents is a safer move, politically, than lawmakers imposing taxes directly on the people that elect them.
  • However, according to a recent survey by Travel Tech, a trade association that represents online travel companies, almost one-third of hotel bookings are actually made by in-state travelers.

Louisiana has been a major target of hotel tax advocates; however its governor, Bobby Jindal, has opposed such efforts. An online travel tax would hurt the state's economy, especially that of New Orleans, a city heavily dependent on tourism. The city would not at all be helped by a law that makes it more expensive for people to travel there.

And contrary to claims that travel booking sites reduce local revenues, online travel companies actually boost business for local hotels directly.

  • One study found that hotels that were listed on online travel sites saw a corresponding increase in direct bookings that were not made through third parties.
  • In fact, those hotels that were simply listed on a third party travel site saw a 7.5 percent to 26 percent increase in direct bookings.

Gleason concludes by saying that, yet again, lawmakers are focused on short-term ways to add more pennies to state coffers rather than actually deal with their states' more fundamental fiscal problems -- most notably, unfunded pension liabilities. More states and cities should be on the alert for online travel tax proposals as the year unfolds.

Source: Patrick Gleason, "State and Local Officials Seek to Increase the Cost of Travel," Forbes, February 7, 2014.


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