Tuesday, June 16, 2009

Columbus, GA: 2, Expedia:0

The Georgia Supreme Court ruled against Expedia in a case brought by the City of Columbus relating to hotel occupancy taxes. In the 4-3 ruling, the court upheld a lower court's ruling that Expedia needed to charge (and remit) the occupancy taxes on the full rate charged on Expedia.com rather than the lower net rate which was actually remitted to the hotel.

This is the third case that has gone against Expedia in recent months with similar rulings in Washington State (albeit a consumer class-action suit) and Anaheim, California.

An example which shows the issue at hand:

Room rate on Expedia.com: $100.00 (Net rate: negotiated between Expedia and Hilton $80.00)
Room rate on Hilton.com: $100.00
Columbus, GA tax rate: 7%

In this scenario, the consumer would pay $107.00 at either Expedia or Hilton.com Hilton charges $107 all-in as does Expedia to maintain rate parity between the two channels. Expedia labels the $7 "taxes and fees."

However, it gets interesting when you look at what is going on behind the scenes. In the above scenario, Columbus gets $7 ($100 x .07) from the Hilton.com booking. With the Expedia booking, Columbus gets $5.60 ($80 x .07) since occupancy taxes are collected (and remitted) based on the revenue flowing through the door of the actual hotel. The hotel never sees the $100 rate - just the $80 wholesale rate and remits taxes on same.

Expedia retains the resulting $1.40 difference as the fees portion of the "taxes and fees."

But here is the rub - this is the way tax has been collected on net hotel rates for years - long before the advent of the Internet. Since way back when Liberty Travel practically invented the travel package, hotels have always paid on the money that flowed across their thresholds. And consumer sales tax is not collected on the wholesale price of goods but the retail price. It seems that a "new" distribution channel has been singled out because of its own success.

Municipalities and states should give a second thought to going after the OTAs - after all, they are critical to bringing in tourist dollars - biting the hand that feeds you may not be such a smart idea. Let us know when Columbus, GA finds another marketing vehicle with as much reach and breadth as Expedia.

We'll see where this one goes - indeed, the appeal would rest with the United States Supreme Court.

2 comments:

  1. Tom: I found out yesterday and wrote about it on my blog today, that Expedia actually began paying tax on the retail rate in Columbus, Ga., because it had to comply with the lower court's injunction while the case was under appeal to the state Supreme Ct.
    Actually, now, Expedia can ask the state Supreme Ct. to re-hear the case, or take it to the U.S. Supreme Ct. on federal issues raised.
    You raise a legitimate point about municipalities biting the hands that feed them. The OTAs seeming would rather withdraw from markets like Columbus than pay up.
    Still, I believe that the OTAs are morally (is that the right word), if not legally, compelled to work out a system where they disclose their service fees up-front to consumers.
    Great post, of yours, regarding the way you explain how the model works.

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