Chafee eyes tax on travel sites

GOV. LINCOLN D. CHAFEE's proposed budget would add a tax to online hotel purchases through websites considered 'hotel resellers.'   / PBN FILE PHOTO/TRACY JENKINS
GOV. LINCOLN D. CHAFEE's proposed budget would add a tax to online hotel purchases through websites considered 'hotel resellers.' / PBN FILE PHOTO/TRACY JENKINS

Taxes are always more popular when they’re paid by someone else, such as, say, television personality William Shatner.
Maybe that’s why R.I. Director of Administration Richard Licht, when asked by reporters to identify whose taxes would rise under new rules for travel websites proposed in Gov. Lincoln D. Chafee’s 2015 budget, jokingly offered the veteran actor, who for years has appeared in commercials for travel website Priceline.com.
Of course Shatner personally wouldn’t be paying the tax, but Licht’s point, aside from identifying Priceline, was that the state isn’t targeting local Rhode Island hotels or travelers, but rather online giants capable of employing a stage and screen icon.
Shatner’s employers, however, argue that taxing them will trickle down to Rhode Island hotel customers, who will be forced to pay more for their rooms here than in other states, even if they don’t know why.
“Ultimately Rhode Island hotels will be more expensive and less competitive with those from neighboring states,” said Steve Shur, president of the Travel Technology Association, a national industry group for travel websites. “That is very important, because leisure travelers are very sensitive to even small differences in price.”
Compared with the size of both the Rhode Island tourism and online travel industries, the amount of money involved in the proposed tax changes is small. The proposed budget estimates $1.4 million in new combined revenue from taxing “hotel resellers” as they call the websites, and extending the hotel-occupancy tax to bed and breakfasts. (State tax officials could not provide a breakdown of how much revenue was expected from those two different sources.)
But the proposal represents the latest engagement between e-commerce businesses and local governments over taxation and regulation. Others include pushes for an online sales tax and collections on virtual marketplaces such as ride shares and room shares. If the proposal passes, Rhode Island would become the third state in the country, joining Oregon and New York, to enact tax rules targeted at travel websites, Shur said. Another 13 states have considered similar proposals and rejected them, he added.
But the fact that the Travel Technology Association is lobbying in Rhode Island points to the significance of the issue to its members, which include Expedia, Priceline, Orbitz, Travelocity and Vegas.com.
Rhode Island officials argue that this isn’t adding a new tax or raising the current 13 percent hotel-occupancy tax, but simply closing a loophole that has allowed travel websites to pay less than they should over the years.
To maximize occupancy, hotels contract with travel websites such as Orbitz or Expedia to sell their rooms in bulk. The sites typically charge customers about the same rate as they would pay if they booked directly, but the websites demand a discount from the hotels for those rooms which, along with fees, makes up their profit.
At issue is whether the amount of tax on hotel stays going to city and state governments’ travel websites should calculate the tax collected on what customers pay the websites or what the websites pay the hotels. Until now, the hotels have been responsible for remitting all sales and occupancy tax, and have done so based on the discounted rate they charge the websites.
Chafee’s budget proposal would rope the websites into the mix and force them to collect tax on the difference between what they charge the customer and what the hotel charges them.
Shur argues that the websites never actually buy or resell the hotel rooms involved, only provide a platform for the transaction, and taxing them for an asset they never own is unfair.
“Specifically, Chafee’s plan is to update the statute to say hotel resellers are specifically subject to state law requiring that they collect and remit the tax,” said R.I. Tax Administrator David Sullivan through spokesman Neil Downing. Although the websites say the change will make the local hospitality industry less competitive, local hotels appear to support the move.
“If [online travel companies] are allowed to continue this practice, jurisdictions will essentially be advocating a higher effective tax rate for in-state hotels as compared with [online travel companies],” the Rhode Island Hospitality Association said in a position paper on the proposal.
The hospitality association is also supporting Chafee’s proposed extension of the hotel occupancy tax to bed and breakfasts, an issue that has proven politically unpopular before.
Last year, Chafee proposed charging hotel tax to bed and breakfasts and short-term rental houses, a move that outraged real estate agents, who claimed it would depress the coastal housing market.
This year the governor left house rentals out of the equation and is only targeting bed and breakfasts.
Under the budget proposal, the state will now be collecting tax from two different parties on each individual transaction involving a website, raising the possibility that the online companies could change the way the deals are structured to get around it.
And then there is the question of how to deal with online package deals in which hotel room stays are bundled with other services like airfare, car rentals or sightseeing tours.
According to the language in the proposed budget bill, the website will have to break out the cost of each item in the package or pay Rhode Island hotel tax on the customer’s entire bill.
“It’s very complicated,” Shur said. “What we have found in other states that have passed something like this is they are having difficulties figuring out these grey areas.” •

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