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D.C. Council bill would force online travel sites to start paying full hotel tax

By Tim Craig
Washington Post Staff Writer
Saturday, December 18, 2010; 8:51 PM

The nationwide fight over whether online travel services pay their fair share in taxes has landed in the District, pitting Web sites such as Expedia.com and Orbitz.com against local hotels and a majority of D.C. Council members.

On Tuesday, the council is scheduled to take a final vote on a bill that would require online vendors to pay the District's hotel tax on the full price customers pay for hotel or motel rooms in the city. The vote comes on the heels of efforts across the country, often unsuccessfully, to get online travel vendors to pay.

Council members said that online travel sites charge consumers the city's 14.5 percent tax based on the final selling price of the room. But city officials say Web-based companies are remitting back to the District the tax collected only on wholesale prices, not retail.

The online sites keep the difference and call it an "administrative fee," according to council member Michael A. Brown (I-At Large), the chief sponsor of the legislation.

"If you buy a room online for $100, but it only costs them $90, they charge the tax on $100 but keep the [tax] on the $10 difference," said Brown, who introduced the legislation at the request of local hotel executives. "They charge the full tax, but keep a portion meant for the District."

The District is facing a $440 million budget shortfall next year, and the council tentatively approved the measure two weeks ago as a way to add up to $10 million annually for city coffers.

But leading up to Tuesday's final vote, online travel vendors have mounted a campaign to try to convince residents that the council is poised to increase the costs associated with using such sites. Furthermore, online travel vendors say the legislation is poorly crafted and would force travel agents and tour planners to stop booking hotel rooms in the city.

"We are very concerned this tax would create significant, negative consequences for the travel and tourism industry in D.C. amidst a down economy and could put a significant number of jobs at risk," said Andrew Weinstein, spokesman for Interactive Travel Services Association, which represents all the major online travel companies.

Weinstein denied that online travel vendors keep a portion of collected tax revenues. If the bill passes, he cautioned that it would be "a new tax" that "hits every single intermediary who books hotel rooms for visitors" and would force agents to place clients in the suburbs.

"Even wedding planners will be hit," he said. "This might as well be called the Arlington and National Harbor [in Prince George's County] tourism act."

Online travel vendors are trying to derail the bill with a radio ad that hit local airwaves last week. "From the porters who get visitors' bags to the staff cleaning rooms to the people at the restaurant, they are all working hard," a narrator says. "But while they are working this holiday season to care for visitors, the D.C. Council is working to put these employees out of work."

Officials with the Hotel Association of Washington, D.C., strongly support the legislation, arguing that sites such as Hotels.com are hurting the local tourism industry by not remitting their fair share of taxes back to the city. A portion of the city's hotel tax is spent to fund the Washington Convention and Sports Authority.

"It will provide additional resources to the convention center and the city," said Solomon Keene, president of the association. "There is no evidence business would be diverted to Virginia, and there would be no impact on jobs."

Keene also disputes the online travel industry's assertion that the legislation would impact travel agents or tour planners, saying the measure is narrowly drafted to affect only online travel sites.

"I have no idea who's right," said council member Jack Evans (D-Ward 2), chairman of the Committee on Finance and Revenue. "I just decided to move the bill and let them fight it out."

In recent years, more than 200 cities have sued or approved legislation seeking back or future tax revenue from online travel sites. While some lower courts have agreed with the plaintiffs, Weinstein noted that most state and appellate courts have sided with the online vendors.

In one ruling last month, a federal judge dismissed a suit by Columbus and several other cities that sought millions in back taxes. The judge ruled the online sites are assessing fees, not taxes, according to the Columbus Dispatch. Meanwhile, District Chief Financial Officer Natwar M. Gandhi has warned council members against relying on any funds that Brown's legislation may generate if it is approved.

New York City recently amended its hotel tax laws, but there are signs the travel vendors are finding success in rallying online consumers. In November, voters in San Francisco rejected a proposal to make that city's full hotel tax apply to online vendors.

But Brown and Keene said the cost of booking a room online would not increase if the legislation is approved. "The person who uses the site isn't impacted at all, because they are paying the tax no matter what," Brown said.

Not so fast, countered Weinstein.

"When does a tax not get filtered down?" he asked.

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