The recent Florida Supreme Court decision in Alachua County v. Expedia, Inc. marks another victory for online travel companies (OTCs) in their conflict with state and local governments over the proper tax base for hotel occupancy taxes.
The court ruled that the total amounts that OTCs charge consumers to secure reservations for transient rental accommodations are not subject to the state’s hotel occupancy tax, which is officially named the tourist development tax. Rather, the taxable portion is the amount the hotel sets and receives for the transient rental.
Further, the court found nothing in the legislative history of Florida’s hotel tax statutes to indicate that the legislature intended to tax monies other than what hotels charge to rent rooms. The court also gave weight to the fact that the Florida legislature has thus far declined to change the hotel tax statutes to explicitly require the taxation of these additional monies.
Due to their overall lack of success in convincing courts to validate the imposition of hotel occupancy taxes on OTC service fees, some states have pursued legislative remedies. The travel industry strongly opposes legislative proposals that would tax the service fees of OTCs, arguing that such taxes will make travel more expensive and put the states that enact them at a competitive disadvantage. Despite this, states such as North Carolina and many localities have amended their hotel tax statutes in recent years to ensnare these fees.
During the 2015 legislative session, Maryland legislators passed a bill that would have amended existing law to clarify that the full amount of consideration paid by a buyer to an online travel company for the sale or use of an accommodation is taxable. Gov. Larry Hogan (R) vetoed the bill, however, saying that the legislature should not have taken action while litigation on the issue is pending. The Maryland General Assembly can override the governor’s veto in the next legislative session with a three-fifths vote of the members in both chambers.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should states seek legislative remedies to tax OTC service fees?
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