What if I told you that large, out-of-state companies were skirting the law and not paying their fair share in taxes? What if I said a remedy to “clarify” current law would force these tax evaders to pay their fair share? It wouldn’t be hard to support such a common-sense proposal.
That is precisely what supporters of Maryland Senate Bill 190 will tell you their bill does. They’ll tell you it’s a matter of fairness and compliance. They’ll tell you it’s about parity. They’ll tell you it doesn’t hurt small businesses. They’ll tell you just about anything to get you to buy what they are selling.
But that Trojan horse is hiding something unexpected. That “common-sense” bill is masking something sinister. The bill is a dangerous new tax on local small businesses and Maryland’s travel and tourism economy.
The bill as passed by the General Assembly would extend the state’s 6 percent sales tax to the service fees charged by travel agents, both online and based in Maryland, on any trip booked in Maryland. Casting a wide net, the bill would impact not only the state’s 226 travel agencies and their 1,100 employees but also tour operators, wedding and event planners and others who work to bring travelers to Maryland. “Despite the rhetoric, this bill clearly gives taxing authorities the ability to go after travel agents of all shapes and sizes, online or offline,” said Zane Kerby, president of the American Society of Travel Agents. The bill would provide a disincentive for travel agents to steer travelers to Maryland hotels.
Yet, some legislators cling to the idea that this bill is a solution to a “loophole” that allows travel agents to collect but not remit the proper amount of taxes. From coast to coast, more than a dozen courts have examined this issue, and every single one has agreed that online travel companies do, in fact, collect and remit the correct amount of taxes.
Lawmakers were misled. There is no loophole. The big hotel chains that support this tax know that travel agents are not skirting the law. Why would hotels do business with scofflaws?
This bill is also not a “leveling of the playing field” for the hotels. That suggests that the hotels are at some disadvantage to online travel innovators. Online travel agents do not buy and resell hotel rooms in competition with hotel chains. They provide valuable information to customers on what their travel options are — in a sense, putting independent hoteliers and small hotel chains on an even footing with the large companies. Perhaps the large hotels are interested in a competitive advantage.
Taxing travel agents on top of the income tax they pay on service fees does not level the playing field for anyone, nor does it benefit the broader hotel industry. It simply levies a new tax on Maryland travel service providers. As with most tax increases, this one will be passed on to the consumer, in this case in the form of higher room rates, making Maryland destinations more expensive and less competitive with neighboring states.
As Jay Ellenby, president and chief executive of Safe Harbors Travel Group in Bel Air, Md., put it, “The cost of this new tax on my business is the equivalent of six full-time employees.” This tax is a job killer, a small-business killer and a burden on Maryland’s businesses and citizens.
The bill sits on Gov. Larry Hogan’s (R) desk. In a recent interview, Hogan complained that some in the legislature “haven’t quite gotten” that he was elected because Maryland wanted fiscal responsibility and relief from the 40 new taxes imposed on the state in the past eight years. Hogan can demonstrate that Maryland has moved in a new direction by vetoing a bill that imposes a tax on Maryland’s small businesses. We only hope that Hogan sees this Trojan horse for what it is before Maryland sees its 41st tax increase take effect.
The writer is president of the Travel Technology Association.