Travel Agency Sales Tax Thwarted in Three States

State tax proposals that would have applied to travel agency sales and services were dropped in Minnesota, Tennessee and Virginia following grassroots campaigns by opponents whose ranks included travel agents.

In addition to state sales tax, the proposals in Virginia and Tennessee also included measures designed to fund local occupancy taxes by taxing agents’ service fees on hotel bookings.

“In all of these cases, the campigns by travel agents were crucial,” said Eben Peck, vice president of government affairs for ASTA, which is actively monitoring the various state tax measures and calling for member action. “Our local agents really stepped up to the plate.”

Minn. governor drops proposal
In Minnesota earlier this week, Gov. Mark Drayton abandoned his proposal to expand the state sales tax to cover service industries, including travel.

After state lawmakers drafted legislation based on the proposal, travel agents testified against it; agents also applied pressure through phone calls and hundreds of email messages to legislators. (See: Minn. Agents Rally to Fight State Sales Tax)

Travel industry members presented arguments on why the proposal to tax gross receipts in Minnesota would be devastating to the travel industry, particularly travel sellers. They pointed out that agents would be taxed on “pass-through” money that goes to suppliers, not agents.

Among those participating in the grassroots efforts were Gloria Stock Mickelson, president of ASTA’s Upper Midwest Chapter, and Patrick Algyer, president of the North Central Business Travel Association, an affiliate of GBTA.

“It was the political process at its best,” Stock Mickelson said of the campaign, in which scores of small business owners descended on the state legislature to testify against the proposal.

Rejected in Tennessee
In the Tennessee State Senate, legislators rejected a bill earlier this week that would have created new taxes on both brick and mortar travel agencies and online sellers. A similar proposal was struck down by legislators last year.

This latest measure would have required agents who use the fee-for-services merchant model for bookings and assembling travel packages to take on the responsibility of calculating and remitting the tax owed in multiple jurisdictions. It also sought to apply a state sales on travel aency sales.

Proposals discarded in Virginia
In Virginia, several tax proposals that would have affected travel agencies were discarded.

The abandoned proposals included three bills introduced in the General Assembly to expand the Commonwealth’s 5% sales and use tax to service industries, including travel. Also discarded were two Virginia bills that would have applied both county hotel tax and state sales tax on fees charged by “accommodations intermediaries” for facilitating hotel bookings.

Among Virginia travel agents who responded to a call to action from ASTA was Mary Peters, owner of Friendly Travel in Alexandria, Va. Peters testified before the Assembly’s House Finance Committee against SB767, one of the hotel tax bills.

While the bill appeared to be aimed at large online travel sellers, Peters said, she told the committee of her concern that the definition of “accommodation intermediaries” would be applied to all travel agencies that charge fees to handle hotel bookings, including small agencies such as her own.

“I explained that it would affect my agency too – not just the big guys,” she told Travel Market Report.

“I also explained that, as agents have become less reliant on declining commissions, we have to rely on fees charged to clients. And, in return, we provide navigation through all the options they may find on the Internet.”

Not a ‘cash cow’
While Peters said she understands that state and local governments are in need of more revenue, she said the travel industry should not be treated as a “cash cow.”

Peters added that she was glad to have had the opportunity to speak before the legislators and explain the realities of the travel agency business. “Sometimes they need to hear from the actual people sitting behind a desk.”

Upcoming battles
The sales tax issue is brewing in two other states – Ohio and Louisiana. In Ohio, legislators are currently holding hearings on a proposal similar to the one in Minnesota. It would subject travel agency sales to a 5% tax.

“We’re seeing news reports that the legislators are getting a lot of pushback on this, so this could be good news for us,” said ASTA’s Peck. “We’re hoping that Ohio will look at Minnesota and say that it’s not worth it.”

In Louisiana, there are reports that the governor is considering making a similar proposal to expand the state sales tax to include travel agencies, according to Peck.

“We haven’t dug in there yet, but we will,” Peck said.