State lawmakers should oppose online travel taxes

Christine Harbin Director of Federal Affairs, Americans for Prosperity
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From the White House to the state houses, elected officials are getting creative in their drive to satisfy their appetite for higher government spending. Once they run out of budget gimmicks to use, they look for new ways to tax. The latest target of this tax-everything trend is business and leisure travelers — an attempt to export their tax burden.  Increasingly at the state level, lawmakers propose to impose steep new taxes and fees on hotel reservations made through online travel companies.

Enacting new taxes on online travel companies will increase costs for the growing number of Americans who choose to book their travel arrangements online with websites like Orbitz and Expedia. These websites offer lower prices that online travel companies pass along to their customers after negotiating lower room prices. Travelers still pay local hotel taxes while booking online when they reserve a room on these online travel sites, and imposing an additional tax would amount to double taxation.

One of the biggest problems with these taxes is that they discourage travel. Higher prices for hotel rooms will make some localities less attractive to cost-conscious holiday-makers, particularly those with children in tow. Facing a higher travel tax burden, many families will choose to vacation elsewhere more affordable; others will chose to stay home.

With fewer bookings in that area to tax, revenue collected will likely be less than projected. A study from Cornell University’s School for Hotel Administration concluded that online travel sites caused reservation volume on individual hotel websites to increase as much as 26 percent. Increasing taxes on these services will lead to fewer marketing resources for hotels in a particular state or region, potentially leading to fewer tourist visits.

Hotels aren’t the only ones that will pay the price for higher prices. Essentially any business that relies on revenue from out-of-town customers will see an impact. Fewer tourists will visit local attractions, restaurants, and nightlife destinations. This will kill jobs and reduce sales tax revenues that many local governments depend on.

Although most state and local governments don’t assess these misguided taxes on online travel companies, many jurisdictions across the country are actively considering doing so. State lawmakers have introduced legislation in a host of states, including Ohio, Massachusetts, Tennessee, Minnesota, and Washington. The most recent attempt was in tax-happy Maryland in February, an effort which thankfully stalled.

Despite these unsuccessful efforts so far, the issue isn’t going away. In fact, proponents of this tax are simply targeting new areas, namely municipalities. The City Council of Burlington Vermont recently signaled their intention to tax these companies by recruiting lawyers who specialize in litigation against online travel companies. Rhode Island lawmakers are also considering higher taxes for those in the hospitality sector. States and localities have even retaliated by filing lawsuits against travel taxes, given their adverse effects, and have been validated multiple times by courts.

These tax schemes unfairly target the travel and tourism sector and hurt the many people it employs, an impact that will resonate in local economies. These taxes are penny-wise and pound foolish, ultimately doing little more than making communities less competitive with their neighbors, and putting a dent in the same local treasuries they are meant to help.