Online travel agents are possible tax target

By Richard N. Velotta (contact), In Business reporter

Fri, Jun 26, 2009 (3 a.m.)

The Nevada Tourism Commission may explore whether it can persuade the state to require online travel agencies to pay room taxes based on what hotel guests are paying rather than the rate the agency negotiates with the property.

Agencies routinely offer marked-up prices while getting a better bulk rate from hotels. They also build package deals that can include airfare, rental cars and other amenities that help keep the actual room cost invisible to the customer.

The proposed change, raised at last week’s quarterly commission meeting, would generate more room tax revenue for the state, but several online agencies and their supporters say they are not subject to occupancy tax ordinances applicable to hotel operators.

“There may be a source of revenue that is right under our noses,” said Commissioner Eric Bello, an executive at the Venetian.

He reasoned that tourists would still come to Las Vegas, and the agencies “need us more than we need them.”

But Commissioner Chuck Bowling, an executive at Mandalay Bay, said MGM Mirage has no appetite for picking a fight with the agencies and considers them partners. He also questioned whether the Tourism Commission should be involved.

“I don’t believe that overall that it’s in the purview of the commission to make that kind of a recommendation,” Bowling said after the meeting. “We have a deep and rich relationship with these online companies, and they’ve invested millions of dollars to develop their business model.”

Because the matter was brought up as a discussion item, commissioners could not vote on it at the meeting, but it’s expected to be on a future agenda.

Bello raised the matter after the Georgia Supreme Court ruled Columbus, Ga., was entitled to room tax revenue based on the amount paid by the room’s occupant.

The Georgia ruling was contrary to five federal court rulings that held online travel agencies are not innkeepers and serve as an intermediary between the hotel and the customer, therefore are not subject to higher rates.

Expedia.com, Travelocity.com and Orbitz.com have since dropped listings for Columbus hotels, steering customers instead to nearby Phenix City, Ala.

But Bello doesn’t think online travel agencies would remove Las Vegas from listings because it is too popular a destination. Las Vegas is frequently the top destination on busy holiday weekends. Orbitz.com recently said Las Vegas is the world’s top booked destination for the upcoming Fourth of July.

One of In Business Las Vegas’ sister companies, VEGAS.com, also is in the business of selling hotel rooms online.

The Georgia ruling has spurred a number of tourism destinations to investigate suits forcing travel agencies to pay higher tax rates.

One of the biggest involves a case in South Carolina. That state is suing Expedia.com, the only company named, for nearly $5 million in back taxes. An administrative law court judge ruled in favor of the state in February and Expedia appealed to the South Carolina Court of Appeals a month later.

Expedia has not said whether it would remove all South Carolina hotels from its listings if the appeal fails.

Art Sackler, executive director of Washington-based Interactive Travel Services Association, said most people don’t understand that online travel agencies don’t buy rooms and serve as an intermediary only.

“All of us are valued partners and are mutually trying to promote travel and tourism and it’s only by working together that we can truly benefit each other,” said Sackler, whose association has seven members and subsidiaries. The association works with about 7,000 taxing jurisdictions across the country.

Sackler said proponents of increasing the tax burden on online travel agencies “are proceeding in a way that is counterproductive to travel and tourism and will damage an engine of business and travel promotion that has been of considerable benefit to hotels” in places such as Las Vegas.