Opponents of a recently enacted hotel reseller tax in New York predicted last week that the measure would discourage travel sellers from booking rooms in the city and thus exacerbate the deep slump the Big Apple is seeing in its hospitality sector.
The reseller tax, enacted last month as an amendment to New York’s Hotel Occupancy Tax, requires that anyone who resells a New York hotel room remit a tax based on the full amount paid by the customer, including any service fees or charges.
Under the merchant model, online travel agencies have until now paid taxes only on the amount they pay the hotel for a room; they have paid no taxes on the markups they charge consumers. Travel agents have never paid a hotel tax on service fees they charge consumers for booking a room or on commissions the hotels pay them for bookings.
"The provisions of the law are not limited to online travel companies," Elizabeth Thomas, media specialist for the New York City Law Department, wrote in an email. "All payments made to travel intermediaries as a condition of occupancy, including booking fees, will be subject to tax."
The new provisions signed into law by Mayor Michael Bloomberg on June 29 are scheduled to go into effect on Sept. 1.
"The last thing New York needs is a new tax on tourists," the Interactive Travel Services Association, which represents online travel companies such as Expedia and Orbitz, said in a statement issued in response to the law’s passage. "A year ago, Mayor Bloomberg said that a higher tax on hotel rooms would be like ‘killing the golden goose’ of tourism, and we agree. Higher taxes on hotel rooms will mean fewer visitors and fewer jobs."
In June 2008, the now-defunct New York Sun newspaper quoted Bloomberg saying, "We don’t want to have more taxes that would hurt the economic well-being of this city. For example, a tax on tourists is a terrible idea. We desperately need tourists from around the world. … Killing the golden goose is not a smart thing to do."
The new law requires that a tax be imposed on the net amount paid for any hotel room booked by a "room remarketer." The ordinance defines that term to mean "any person, excluding the operator, having any right, access, ability or authority, through an Internet transaction or any other means whatsoever, to offer, reserve, book, arrange for, remarket, distribute, broker, resell or facilitate the transfer of rooms."
Based on Thomas’ explanation, rent includes any additional fees or charges an online travel company, retail agent, tour operator or wholesaler charges for the transaction. It remains unclear if an agent’s commission would be taxed.
"A third-party fee like that … that may not be taxable," said Antonio Whitaker, director of legislative affairs for City Councilman David Weprin, who authored the amendment.
"The intent of the bill is to ensure that travel companies are actually paying the full amount of taxes that is owed to the city," Whitaker said.
The City Finance Division’s report on the amendment offers this example: "Let’s assume an online travel company rents a hotel room from a hotel operator valued at $100 for $50. The same online travel company subsequently charges consumers $80 to rent the same room. The travel company [currently] will pay the tax on the wholesale rate of $50. … In this transaction, $30 remains untaxed. This bill seeks to correct this problem."
But according to travel associations, what it really creates is a host of problems for travel companies and, potentially, for New York’s tourism industry.
"If we’re talking about a travel agent who earns a commission on a hotel room and [the commission is] going to get taxed on occupancy, [then] the same commission is being taxed two times, as income and as a hotel occupancy," said Paul Ruden, ASTA’s senior vice president for legal and industry affairs. He added that the same was true for any service fees or mark-ups agents apply to a New York hotel booking to generate income.
"Our view of the occupancy tax ordinances is that they’re written in a way that captures things that were not intended," Ruden said. They are written, he added, by "people who don’t know about the industry who just want more money."
Ruden said that ASTA got word of the amendment on June 26, only three days before the bill was signed into law. The Society initiated a campaign asking agents to call the mayor’s office to voice their concerns. He estimated that at least a dozen agents did so.
Bob Whitley, president of the U.S. Tour Operators Association, said a similar law was introduced in Hawaii about a decade ago, but a lobbying firm was hired and the bill was defeated.
Whitley called New York’s law "impossible to administer." He added: "It’s a law, but an unenforceable law."
Among the law’s most burdensome aspects is a requirement that all hotel remarketers register with the city’s finance commissioner by Sept. 4, within three days of the law’s effective date. Within five days of registering, the finance commissioner will issue the remarketer a certificate of authority that will allow the remarketer to charge customers the additional tax. There is no charge for the tax certificate.
"The law, as written, could affect everything from your small mom-and-pop agency to the largest travel companies on Earth," said Andrew Weinstein, spokesman for ITSA. "That includes not only the financial costs associated with the tax but the logistical cost; those could be significant burdens. This law may have been passed without adequate review, given the significant negative impact it could have on tourism to the city."
The law’s passage in New York came amid a flurry of lawsuits filed by some 50 city and county taxing districts around the country alleging that online sellers of hotel rooms and other hotel intermediaries are shortchanging local tax coffers when they collect hotel occupancy taxes on the retail rate but remit tax-recovery charges to the hotels based on the net rate.
The mayor’s office did not respond when asked if those lawsuits were a factor in deciding to sign the bill into law.