In contrast to slow-moving, gridlocked Washington, action in the states happens at lightning speed. In recent weeks, states across the country have been debating proposals that will have an immediate and tangible impact on both your bottom line and how you run your business.
The stakes of these debates couldn't be higher, no matter where you live, because once one state adopts a bill, others tend to follow. Below are three trends in state policy that relate directly to the travel agency industry, as seen by ASTA.
Hotel occupancy tax
Many states and local governments impose a tax on hotel bookings, known as "occupancy tax," which can range from 1% to 15% or more. From the government's perspective, this is an easy way to raise revenue: targeting "out-of-towners" rather than their own constituents. State governments decide who gets to charge occupancy taxes and how much. As their budgets have been drained by the recent economic downturn, they are scrambling to cut spending or raise taxes, including occupancy taxes.
State after state has considered extending occupancy taxes to cover service, consulting or other markup fees a travel agent charges for booking rooms. This adds up quickly as more and more agents move toward a fee-based (as opposed to commission-based) business model. In fact, in 2010, 60% of the average travel agency's revenue came from fees rather than commissions -- all now potentially taxable, at least as it relates to hotel bookings.
This is your business income, and you already pay federal and, in some cases, state taxes on it. These bills would tax it a third time. Overtaxing these fees will force agents to either change the way they run their businesses or raise fees to uncompetitive rates. This is why ASTA is fighting so hard against these taxes, and our success is showing -- see "wins" in Connecticut, Oregon, Pennsylvania, Tennessee, Texas and Virginia. (Click the image, left, for a view of a map of the wins and states where fights are still pending.)
Travel agent registration
Another bad idea we see time and again is bills that force travel agents to register with, and pay fees to, the state or disclose the details of their compensation in ways that apply to no other segment of the industry. These bills typically go after scam artists who purport to sell travel, pocket the money and skip town, but the reaction falls on the law-abiding agent.
ASTA has no objection to efforts to weed out unscrupulous individuals masquerading as legitimate travel agents, and our industry already has a number of ways for consumers to determine who is a legitimate travel seller (one of the best ways to verify legitimacy, in fact, is ASTA.org). But some of these bills -- which call for fingerprinting, criminal background checks, stiff registration fees and the like -- go too far. In the same category is a bill in Massachusetts that would require any seller of travel to provide an itemized description of any commissions they get from a third party. Agents are already required by state law to disclose fees charged to consumers, and this bill adds the requirement to provide detailed information about the commissions agents sometimes earn, which can change with each transaction and are a moving target, especially in the case of group sales. This would be unprecedented in our industry.
Fighting these punitive bills and preventing discriminatory, burdensome regulation from being applied to travel agents is one of our top priorities at ASTA, and we have been successful, killing one in Washington and continuing to fight in New York and Massachusetts.
Travel insurance deregulation
Travel insurance offers tremendous value to consumers, and offering insurance is a great revenue source for agents. Several years ago, however, ASTA realized that the travel insurance regulatory system was broken and set out to fix it.
The problem is twofold. First, states treat travel agents as insurance agents, with all the regulatory hassle that comes with that title. Second, the travel distribution landscape has changed dramatically, enabling agents to reach and service customers in every state. While some states don't actively enforce out-of-state compliance, some do. We estimate that it could cost as much as $40,000 for an average agency to be compliant in every state, which is simply unacceptable.
Changing regulations, and in some cases, laws in 50 states is not easy, but ASTA has enjoyed some remarkable success. In 2010, working with the U.S. Travel Insurance Association, we were able to persuade the National Association of Insurance Commissioners to create a set of standards for all states to follow. That, it turns out, was the easy part. While the commissioners agreed to the standard, every state has its own process for making the change. Some require a regulatory action, which the insurance commissioner can pursue, while others require a change in the law. Examples of the latter are Kentucky, Florida and Minnesota, which recently passed bills adopting the new standard.
As we push forward, we view travel insurance deregulation as not only a "win-win-win" on our map, but a win-win-win for agents, insurance providers and consumers alike. Setting common standards provides a solution to the regulatory morass that makes it difficult for travel agencies, especially those that are small businesses, to conduct business. Once these standards are in place across the country, agents will be able to go back to doing what they do best: selling travel.
There is no shortage of legislative action, and much of it could have a serious impact on your business. This is why it is crucial to have a strong and united travel agency industry supporting ASTA in our work. Protecting and growing this industry is not only in the interests of suppliers, which sell more product, but also the traveling public, who enjoy the benefit of experienced agents helping them decide how to spend their hard-earned travel dollars.
Eben Peck is ASTA's vice president for government affairs. Contact him at [email protected].