Maryland Bill Would Impose New Taxes on Agents

Over strong objections from ASTA and a coalition of local travel agencies, the Maryland state legislature passed a bill that could open the way to taxing service fees charged by agents on hotel sales.

The legislation now goes to the desk of Governor Larry Hogan, who, as those opposed to the bill are noting hopefully,  campaigned on a “no new taxes” platform.

But Hogan’s stand on this particular bill isn’t clear, according to ASTA treasurer Jay Ellenby, CEO of Safe Harbors Travel Group in Bel Air, Md., who actively campaigned against it.  

Ellenby warned that if enacted, it would “burden travel agencies with new taxes and red tape,”  by lumping brick-and-mortar agencies in with large OTAs.

OTAs targeted
The bill is clearly aimed at the OTAs.   

Under the proposed law, OTAs like Priceline and Expedia would have to pay state tax on the total hotel rate they charge consumers. Currently they are taxed on the rate they pay the hotel before marking it up.

So a site that pays, say, $80 for a hotel room but sells it to the customer for $100, would now have to pay the 6% state tax on the total, higher amount,  just like hotels do when consumers book direct.

The bill passed the state House of Delegates Wednesday after clearing the state Senate last month, in both cases, by large majorities along party lines.

During the House debate, several legislators sympathetic to ASTA’s concerns tried to amend the proposed law to ensure agents’ service fees would not be targeted, but they were unsuccessful.   

Supporters of the tax bill say they are simply closing a loophole, and they’re backed by some powerful supporters, including Marriott—whose corporate headquarters are based in Maryland—as well as the rest of the state’s lodging industry.

Impact not fully understood
But the full impact of the bill on agents isn’t completely clear. Ellenby noted that commissions earned by agents on hotel bookings are not affected, and agents’ fees aren’t specifically addressed.

“The language in the bill is truly ambiguous, “ he said.  But he added that most observers are assuming that  agency fees charged on a transaction including a Maryland hotel room would be taxed.

Eben Peck, ASTA senior vice president of government and industry Affairs, said that one challenge for the association is explaining the complexities of the travel industry to lawmakers around the country, many of whom are just waking up to the potential of taxing this sector.  

And the lack of clarity in Maryland’s initiative is yet another example, he said.

“As with similar bills across the country, this is being described in Annapolis as something that is all about the big online travel agencies, but the word ‘online’ is nowhere to be found in the legislation, “ said Peck. Rather the law takes aim at the broad category of  “accommodations intermediaries.”  

Still, he said, “It could impact travel agents of all shapes and sizes, online or offline. “  

Other states—other concerns
ASTA’s concerns aren’t only with Maryland.

A larger movement around the country would expand state sales taxes that are imposed on purchases of tangible items to include service industries.

Peck said governors in at least four states — Illinois, Maine, Ohio, and Pennsylvania  — are in favor of this approach. In some cases, they’re even singling out travel services by name.   

“These proposals range from the highly annoying, like having to collect taxes on fees or register as a vendor,  to the devastating – having to hand over 5% or more of agency gross sales to the tax man,” Peck said.

That prospect “would put a lot of agents out of business or force them to move to different states,” he added.