Discount online travel agencies Expedia.com, Priceline.com and others lost big in New York State Supreme Court last week when a judge dismissed their lawsuit against the city’s hotel tax. The ruling will pay off in greater transparency for online travel customers and preserve millions for city coffers.
The lawsuit targeted a city law, enacted in September of last year, which levied a tax on the service fees pocketed by the online agencies and forced the companies to provide their customers with a breakdown of the hotel taxes on their bill.
The court’s moves means that online-travel bookers will have to pay the city the full amount of the city hotel occupancy tax they collect based upon the quoted room rate to their customer, rather than a lower rate they might have negotiated internally with the hotel operator.
More than 10 online travel agencies joined a lawsuit against the New York City Department of Finance last December trying to block the law, which cut into their revenues and, they claimed, threatened their livelihoods.
The law in question, Local Law 43, closed a tax loophole that online travel agencies had enjoyed for years. When a customer booked a hotel room through an online travel site, they pay the quoted room rate—for example, $200—plus the hotel tax. In New York City, the hotel room occupancy tax is 5.875%, so the bill in this case would be nearly $212.
But in most cases, online travel booking sites negotiate a discounted room rate with the hotel, at say, $150 per night, which the hotel tax would boost to about $159.
Before Local Law 43 was enacted, online travel agencies would collect the $212 from their customer, pay the hotel $159, and then pocket the difference as a service fee.
City officials smarted at the idea that online travel agencies were collecting the $12 in “hotel taxes” but then only paying $9 in actual hotel taxes to the city.
The city law enacted more than a year ago changed the provisions of the tax, mandating that hotel occupancy tax be levied on “the entire amount paid by the customer” for the hotel room, among other changes.
Tom Costello is the CEO, Partner & Co-Founder of Groups International, a company that provides marketing, consultative services, and technology solutions to the group and leisure travel markets. Connect with him on Twitter, LinkedIn, and Facebook or contact him by email.