Monday, October 07, 2013
Ind. Courts - More on: Tax Court to hold full hour of oral argument Tuesday on whether online travel sites are subject to sales tax and on what basis
Online travel providers and the hotel industry will clash next year over which side is responsible for forwarding taxes to state and local governments, setting up high-stakes battles in state capitals that are increasingly facing the question of how to tax Internet sales. In this case, the consumer’s bottom line may not change, but shifting the tax burden is a threat to travel providers still operating on narrow margins after a recession severely dented their balance sheets.
The rate an online shopper sees now reflects a balance between hotels and the travel providers who sell their rooms. The online sites contract with hotels to sell rooms at below-market rates, then sell those rooms to the consumer at market rates; the difference is where Orbitz and Travelocity and Expedia make their profits. And even if the hotels are only receiving 80 percent of their regular rate, it’s better for them than to leave the rooms unoccupied.
What happens next is the nexus of the debate: When you pay the online provider the cost of the room plus the tax, they forward the contracted amount to the hotel. The hotel then forwards the taxes on the contracted rate on to state and local governments. But there’s a gap between the taxes the consumer pays and the taxes for which the hotel is responsible — and the hotel industry wants to close that gap. * * *
Both sides are fighting over the taxes in courts from Florida to Chicago. A federal court in Texas and state courts in South Carolina and Georgia have all ruled that online travel sites must pay taxes on the full amount under existing statute, while the travel sites won a case in Los Angeles in 2004.
But the fact that a resolution advocating the changes passed the NCSL is an indication that hotel and lodging interests will push the measure in legislatures again this year. For a resolution to pass the NCSL, a bipartisan group of state legislators whose executive committee is meeting this weekend in Portland, it must receive three-quarters of the vote, a high standard aimed at ensuring bipartisanship.
Posted by Marcia Oddi on October 7, 2013 01:18 PM
Posted to Indiana Courts