Cities versus Online Travel Companies

Abstract

This article examines suits by municipalities against online travel companies (OTCs) for not remitting the appropriate room occupancy tax. At issue is whether OTCs should collect tax on the amount they pay hotels for rooms or on the higher amount charged consumers. This article describes the business structure of OTCs as related to tax collection and discusses legal issues and recent court decisions as well as state and federal legislative proposals to address occupancy tax issues. At this time, it is not possible to cite a single rule that applies in all situations due to the numerous state and local laws and court holdings in relation to this matter. A key question involves whether OTCs are agents for hotels, as argued by many municipalities, or if instead the OTC acts as a personal shopper for would-be guests. In the agency model, the OTCs are in effect selling rooms subject to occupancy tax; while in the merchant model, the OTC would be providing a service, rather than rooms themselves, and the service would not be subject to occupancy taxes. A key element in the tax liability determination is the physical presence of a business. Although the U.S. Supreme Court has issued holdings on physical presence and other issues relating to occupancy taxes, the Court has not spoken on what constitutes physical presence. Lower courts have been divided on matters relating to occupancy taxes. Given conflicting holdings, the matter's resolution may rest with the Supreme Court, if it chooses to hear this matter.

Identification of Distorted Official Hospitality Statistics’ and Their Impact on DMOs’ Funding’s Sustainability: Case Notes from Slovakia

“…Number of taxed overnight stays (n_nights_real_tax_div_tax_rate) Average number of overnights per ASP for SUSR (avg_night_per_acc_susr) (4) In accordance with SUSR's monthly survey, SUSR's data should cover all overnight stays (n_nights_susr) of all accommodation facilities, regardless the operating legal entities' NACE code. Assuming the validity of SUSR's data, it is possible to estimate the ratio of taxable nights (ratio_taxable_nights) (5).…”

“…On the other side, Lee and Ki acknowledge that the effective use of occupancy tax for tourism promotion may outweigh the disadvantage that arises from higher customer prices [3]. Hamilton et al analyze the impact of online travel companies' (hereinafter OTCs) impact occupancy tax collection, in particular, whether OTCs are reliable on municipalities for tax collection [4]. Kljunickov et al raise awareness regarding the misuse of AirBnB's concept of shared economy by accommodation service providers from the perspective of tax evasions and negative impacts on price of local housing and local hospitality industry [5].…”

Travel Agency website using Azure AI services

“…In [8] Hamilton, A., Marshall, S. B., & Hobson, H. A. conducted a legal analysis to examine the issue of liability for room occupancy taxes in the context of cities versus online travel companies (OTCs). Their task involved investigating the legal frameworks, regulations, and judicial precedents governing the imposition and collection of room occupancy taxes from accommodations booked through online platforms.…”

Cities versus Online Travel Companies

“… 39. Walter Hellerstein to National Conference of State Legislatures, 16 July 2009, “Views of Walter Hellerstein Regarding Proposals for Taxing Services of Travel Intermediaries,” as quoted in Hamilton (2009), 661, 664. …”