Travel Sellers Face Tax, Compliance Costs for Booking NY Hotels

New York’s travel agents are urging the state’s governor David Patterson to kill the sales tax on “hotel remarketer” service fees enacted by the state legislature this week as part of its revenue-raising measures to close the funding gap on a budget that was four months late in passing.

Long Island ASTA president Steve Powers, of Hidden Treasure Tours in Long Beach, NY, issued the following statement to Travel Market Report on behalf of the New York state chapters of ASTA:

“If Gov. Patterson signs this bill as it is written, it will only serve to discourage tourism to New York. The effects would be devastating to the travel industry throughout the world, which will have to collect the additional fees, and incur additional bookkeeping costs for this regressive bill. Consumers, no matter how deep their pockets, will have to pay more on already overpriced New York accommodations and receive nothing in return. Is this the message that our legislators want to send? Visit New York but stay in New Jersey or Connecticut? We implore Gov. Patterson to use his pen to cut this counterproductive passage in the NY State Budget.”

ASTA, said Colin D. Tooze, vice president of government affairs, is very disappointed by the New York legislature’s actions, which came in the face of a concerted lobbying effort by the Society in conjunction with New York’s travel agents and an industrywide coalition. Tooze told Travel Market Report: “We are hopeful that the governor will recognize that this legislation is a destructive shortsighted move. “New York agents would be grateful if Patterson would veto this or direct the state legislature to remove this.”

Tooze added that New York is balancing its budget on the backs of small business travel agents, who operate on tiny margins.

While the final version of the tax does not include a sales tax on 120% of a hotel fee as initially proposed (and previously reported in TMR), it does include definitions of “hotel remarketers” so broad as to include all planners – from the giant Online Travel Agencies to the traditional travel agency and tour wholesalers/operators and even wedding planners, noted Andrew Weinstein, spokesperson for the Interactive Travel Services Association (ITSA), which has joined with ASTA in fighting the New York measure.

In New York State, sales taxes are set at the local level. In the country’s top tourism destination, New York City, for example, the rate is 8.875%.

The ITSA spokesman noted that the legislation’s language would apply the sales tax on hotel fees to packages as well, so that someone who puts together a tour packages to New York City would incur the sales tax on the service fee on the hotel portion of the package.

From TMR’s reading of the legislation, the sales tax on hotel booking service fees and the costs of compliance with it appears to apply to all travel sellers nationwide, but the industry trade association representatives did not comment on TMR’s take because they were still studying the language in the law.

Besides the direct costs imposed by the tax, a major concern for agents, Tooze declared, is the cost of compliance with the law, that will include additional recordkeeping and possibly the need to hire additional staff or contract with accounting and legal professionals to track the tax that the travel seller owes.

Tooze did not rule out challenges to the law in the court system. He said said that ASTA would work with appropriate bodies in state government to help them understand business model agents operate under during any  compliance procedure.

Indeed, the cost of compliance, noted Weinstein, would probably be greater than the cost of the actual sales tax, and would be very burdensome for the small businesses that predominate in the retail travel industry.

The legislation, he added, is ignorant of the way the travel industry works, and, in Weinstein’s words, of its “very robust ecosystem” of small businesses that are not remarketers, that is, they do not purchase hotel rooms and then resell them. Rather, especially in the case of the OTAs, they negotiate rates with hotel companies and, when consumers book them via a Web site, the OTAs charge a service fee.

Some agencies use dynamic packaging and some traditional agents will go to an OTA to get the hotel portion of a vacation they are putting together, and the New York law is ignorant of the complexity of this process, noted the ITSA spokesman.

In urging New York Governor Patterson to do away with the revenue measure, both New York ASTA’s Powers and ITSA’s Weinstein said they are not sure whether the travel industry will seek to influence the state rulemaking procedures that will govern how this tax is implemented.

Weinstein noted that ASTA and ITSA, along with the Business Travel Coalition and others, have launched a coalition that is seeking federal legislation that would pre-empt the states and relieve travel businesses from the costs of complying with 50 different tax codes.

Among the priorities for the coalition, called TravelersFirst.org, will be passage of the Internet Travel Tax Fairness Act (ITTFA), federal legislation that would protect online travelers from being taxed twice on each hotel visit they book online – once on the cost of the hotel room and a second time on the service fees for booking the room.

“America’s travelers will no longer silently watch as tourism taxes rise,” said Art Sackler, executive director of the Interactive Travel Services Association (ITSA). “Tens of millions of Americans use online travel sites every year to book vacations, plan trips, and visit friends and family, yet their voices have been missing from policy debates over important travel issues like new taxes and regulation. The TravelersFirst.org coalition will help millions of online travelers mobilize and make their voices heard.”

The Internet Travel Tax Fairness Act would create a federal standard for travel taxes by protecting all existing local hotel occupancy taxes, allowing states to tax the fees charged by travel intermediaries, prevent the nation’s 7,000 local tax authorities from creating conflicting and contradictory tax policies in this area, and ending new litigation on the issue, while allowing ongoing cases to proceed.