Bill would add to state’s, localities’ tax money

By Chelyen Davis

RICHMOND—Online travel websites would have to pay taxes on the amount a consumer pays per night for a hotel room, rather than on the lower rate the website paid for the room, under a bill passed Friday by the Virginia state Senate.

If passed into law, the bill—from Sen. Frank Wagner, R–Virginia Beach—could settle a longstanding dispute between online travel services and local governments.

Online travel agencies such as Orbitz, Priceline and Expedia don’t pay the state sales tax or the local hotel tax—also called a transient occupancy tax—on the price they get from the customer. Instead, those travel agencies pay the tax on the price for which they buy the room from the hotel, which is lower than the price a customer pays the travel company for the room.

The travel companies say the difference is a “service fee,” and thus is not subject to tax. Virginia, like many states, does not tax services. Some local governments around the country have sued the big online travel services over the issue.

The tax rate for hotels can mean big money for localities and the state. According to a fiscal impact assessment of Wagner’s bill, about 11.4 percent of hotel transactions in Virginia go through the online services. The price difference between how much the online services pay for the rooms and how much they charge customers can range from 25 percent markup to 40 percent.

The fiscal impact statement said the state and localities could draw in $2.3 million more in 2014 through Wagner’s bill, and up to $6.7 million by fiscal year 2019.

Similar bills in past years have failed in the House of Delegates, where Wagner’s bill will now go.

Cheleyn Davis: 540/368-5028

cdavis@freelancestar.com

Permalink: http://news.fredericksburg.com/business/2013/01/25/bill-would-add-to-states-localities-tax-money/