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Online Booking Companies’ Tax Evasion Fleeces Flagler Tourism and Florida Dues

| February 20, 2013

Of course they're dancing. (Danxoneil)

Of course they’re dancing. (Danxoneil)

When was the last time you planned a trip? The days of going into our local travel agent, booking a vacation and not having a care in the world are becoming somewhat obsolete. As with so many other things in our lives, technology lessens the personal approach. Even government can’t keep up with the Internet’s implications: How many of you realize that with a click of a mouse we are giving up millions of dollars in revenue for the state of Florida and our local communities?

milissa-holland-sigThe situation boils down to this: If a traveler goes directly to a hotel’s website and books a room, the calculation of the hotel tax is simple. The traveler stays at the hotel and pays the hotel a room charge plus a local and state hotel tax based on the room charge. If the room is $100 a night, and the hotel tax is 15 percent, the tax owed is $15. No other parties are involved and no other amounts are paid by the consumer. The hotel keeps the room charge and forwards the tax money to the government. The tax Is not on the hotel but on the tourist to account for the impact of the tourist on the local jurisdiction. The funds are used to support the local economy in tourism promotion to generate more activity that benefits local businesses and employment.

But hotels generally agree to allow an online travel company like Expedia or Hotels.com to sell rooms to the traveling public. The online travel company pays the hotel a discounted wholesale price for a set of rooms. The online travel company resells the rooms for a higher retail rate to tourists. When guests check into hotels, online booking vendors pay hotels the wholesale price and the sales and tourism taxes based only on that lower rate. But the online companies charge customers higher rates, to make their profits, and bill service fees and taxes based on those higher rates, generating still more profits. And pocketing the entire difference.

The hotel renting the same room to individual customers must charge the full tax. That gives online travel companies a competitive advantage. These companies are capturing funds sufficient to pay the taxes. They are just not doing their duty and paying it back to the locality or state.

Florida and counties heavily reliant on bed taxes such as Flagler never see the balance of those additional taxes. Online companies state that their price includes “service charges and taxes,” but they’re not required to itemize the fees or taxes on customers’ bills — unlike Florida hotels that deal directly with guests and must detail all charges.

Almost 86 million visitors came to Florida in 2011, according to the group Visit Florida, staying in hotels, using online travel agencies to make reservations. What is more shocking and baffling is the attempt by the online travel companies to seek a tax exemption from the Legislature for the last four years while refusing to pay the tax. More shocking is that the bill has passed some committees in the Legislature and one time passed the full House of Representatives.

Fortunately, local governments and local advocates including local businesses that depend on tourism have successfully opposed, with enormous efforts, these tax bills that would provide huge windfalls to online booking companies. The issue sharpens when you consider that the tax favor theses out of state businesses seek is for operations that maintain no actual, physical facilities here, and no direct employment, as does our hospitality industry. How could any of our state legislators just allow this money to escape out of our state when it’s already being paid, it’s already being collected, but is just not being remitted to the locality or the state? Anti-tax sentiments are misplaced in this debate. This is neither a new tax nor an additional tax. This is about governments collecting the sales and local tourist taxes rightfully owed.

The focus should be on Florida’s tourism industry and jobs. An estimated $29 million is lost annually in local tourism tax revenue statewide. And the state loses some $40 million in sales taxes, according to legislative economists.

The Florida Legislature should not codify this inherently unfair favoritism to online companies. Some cities (including New York City, South San Francisco, and Washington, D.C.) have legislatively changed their laws to ensure that all taxes paid on any hotel transaction are remitted to local or state governments.

This isn’t only a Florida issue. Every state is grappling with the issue, It is very important for Florida to be proactive on this issue since tourism is such a significant part of our economy and we have a governor continuously seeking to shore up revenue. Remember, we are not just talking about the tourist development tax. It’s all other sales taxes the online companies are not paying, whether it’s for schools’ half-cent sales tax or the state’s 6 percent sales tax, some of which the county and the cities in Flagler get back in the form of revenue sharing.


So come on, Gov. Scott! Flagler County has fought this battle year after year. Hawaii fought hard for their fair share and won. Why hasn’t Florida aggressively pursued these companies to remit the proper tax amounts? Scott can model Florida’s approach on Hawaii’s.

In a recent report from the Hawaiian Attorney General, a ruling by Tax Appeal Court Judge Gary W.B. Chang requires online travel companies (“OTCs”) to pay the state approximately $150 million in overdue taxes. Chang granted summary judgment for the State of Hawaii against OTCs including Expedia, Hotels.com, Hotwire, Orbitz, Travelocity and Priceline, ruling that the Hawaii General Excise Tax (“GET”) applies to the sales of Hawaii hotel rooms by online travel companies. The amount of unpaid taxes owed from 2000 to 2011 is approximately $110 million, plus interest of approximately $40 million. The ruling could also result in future GET collections of approximately $20 million annually, beginning in 2012. Since 2000, the OTCs have made sales of over $2.7 billion of Hawaii hotel rooms.

Chang ruled that the GET is a tax imposed on businesses for the privilege of doing business in the State of Hawaii. He emphasized the broad nature of the GET and ruled that it included the sale of Hawaii hotel rooms by OTCs. “This is a significant ruling for the people of Hawaii,” Governor Neil Abercrombie said. “When I first came into office, I made this a top priority after I discovered that the previous administration had chosen not to pursue these taxes. I asked the Attorney General and the Tax Director to aggressively and relentlessly go after these taxes that were due and owing. The court’s ruling shows that we were right to pursue this.”

Attorney General David Louie noted that “Hawaii hotels are good corporate citizens, paying their fair share of taxes to support the state’s infrastructure, such as roads, schools, personnel and other costs, and the OTCs need to also play by the rules and pay their fair share. We look forward to reaching a final resolution and collecting these monies for the people of Hawaii.”

This week on Milissa Holland Live we will be delving into this very important issue. Imagine if we aggressively pursued this—how much money would be freed up to invest in education and infrastructure. Now is the time to speak up! I look forward to hearing your comments and thoughts.

Milissa Holland, a Flagler County commissioner from 2006 to 2012, is host of Milissa Holland Live on WNZF 1550 AM, Fridays at 10 a.m. Her column will appear here every Wednesday. Reach her by email here, on Facebook or on Twitter. While she’s on the air Friday morning between 10 and 11, call her at 386/206-WNZF (or 206-9693).

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13 Responses for “Online Booking Companies’ Tax Evasion Fleeces Flagler Tourism and Florida Dues”

  1. glad fly says:

    tax evasion?? i think not. it’s perfectly legal and it keeps the local and state tourism related businesses honest. who writes this worthless crap? if you don’t like it move to another state. it’s funny. it’s always northern transplants that whine the loudest,such as newspaper editors,etc….the same ones that hide behind the freedom of the press part of the constitution yet will go after a private individual doing the same thing.

  2. glad fly says:

    by the way who in their right mind will pay more “locally” when they can get it cheaper on line? i think it’s a no brainer. nobody is going to buy locallly just to be nice. those days are over forever. why do you think the post office is hemmoraging money at the tune of $14 million a day? i’m not taking a side with this just stating an opinion. i go to calif all the time and have to shop foir the lowest price and these local travel agencies don’t have it.

  3. Keep it in your pocket says:

    If it were collected, those as former commissioner Holland would just blow it. Perhaps on another marina or something to benefit a good ol boy. I prefer to keep it in my pocket. I shop more on line and spend more over all because of the saving. The greedy should be glad anyone wants to come to Flagler County….there is nothing here to attract anyone. Greed is a terrible thing, isn’t it?

  4. Oldman says:

    Trip ? Vacation ? Who has money for these things ? I’ve lived in Palm Coast for the last 20 years and have NO money left after mortgage, property tax, license plate fees, water, electric, auto insurance, trash removal,
    lawn mower( yes I cut my own ), gas, IRS, local politicians salaries, etc…..Please…someone buy my house so I can leave this place and actually take a vacation……I’m old now, I want to go to Colorado and smoke pot legally and eat buffalo burgers.

  5. Kinda sad says:

    I would like to kindly say that although I understand your position, I do have to point out that I am saddened that your Flagler Live provided platform for reaching out to the public is being used to push your democrat positions. Every week I read you say, “when I was a commissioner…..” This week you try to push your ideas about how online companies should be regulated, but honestly Melissa I do not believe that you are in touch with how most citizens of this county feel about the issues that you bring up. Thanks for listening.

    Ps. Hawaii is one of the states closest to socialism in this great country. Please don’t push Florida to be like Hawaii.

    • I say says:

      Kinda sad:
      I agree, Ms. Holland is out of touch, and I feel her background lacks. It is ashame that Flagler Live provided the oppertunity to try to keep her alive politically. Milissa should get out there and get a job and find out what it is to work in our county as a normal citizen and not an elected official, and then she can relate to the rest of us. I too am tired of hearing about when she was a commissioner. I pesonally am glad she is no longer a commissioner, and welcome the change.

  6. Jerry M says:

    A typical bureaucrat position. Always wanting more taxes more revenue for their special programs

    First I would not call the local hotels selling their excess capacity ( unbooked rooms) to websites as a wholesale transaction. I think classic definition of a wholesaler is a business that sells majority of their product to non end users/customers. I think a more appropriate term here is the hotel is selling their vacant rooms at a discount to the websites.

    The website either by buying the excess room availability (at a discount) from the hotels at the spot market or purchasing an option from the hotel to buy the excess room have risk and should be compensated for the risk. If the website cannot sell these excess rooms the website will lose the cost of the option or the cost of the discounted room.

    If the bed text is needed to cover the impact of tourism why are we encouraging tourism? Four years Melissa has said tourism is a positive economic impact for Flagler County but in this article she’s indicates that tourism is a negative economic impact?

    Is it possible that these websites are actually having a positive impact on Florida’s economy? That these websites are promoting lower hotel prices which encourages more families to visit Florida?

    Before these websites were prominent the customer will have to call or go to 10 different hotel sites to find the best rate, now they go to one or two.

  7. johninc says:

    The real problem is that taxes, like sales tax and hotel taxes, are relics of the past way of doing business, kind of like dinosaurs. The government should not be fighting to keep them alive, but finding other ways of generating revenue. Consumers want to save money, and no consumer wants to pay anymore tax than they must. Obviously consumerism is changing with the times. Why isn’t the government?

  8. there are three sides to every story says:

    go after them ..they are not paying their fair share like the rest of us!

  9. glad fly says:

    shooting the messenger doesn’t work. i respect ms holland’s opinion. an analogy: why would you go to target or wal-mart and pay $12-$16 for a cd or dvd when you can order a used one from amazon for a dollar and have it delivered to your house in 3 days? most people simply cannot afford to take the local route when they have rent,water,power,groceries,etc.

  10. kmedley says:

    Hawaii’s court case, as referenced, is not a final legal decision for this subject as there are upcoming hearings and both sides still have the right to appeal.

    http://www.khon2.com/news/local/story/Court-orders-online-travel-companies-to-pay-state/x4eMU3uNyEyD36RahAeZxA.cspx

    According to the example used, hotels are paid the sales and tourism taxes; but, at a lower rate and that is the sticking point for local government. They are not getting as much. Rather than streamline their own process, and cut the fat from their own budgets, the immediate reaction seems to be to punish those who are successful in realizing a profit. We are a consumer driven ecomony and consumers look for deals and the online travel companies provide the deals. The OTCs did not happen overnight and I suspect government has been aware of their “impact” for quite some time; but, rather than adjust and cut back on projects, such as perpetual sidewalks and landscaped medians, they continue to overbudget and cry when revenues fall short and prevent them from realizing many pet projects.

  11. kmedley says:

    So, I am listening to the broadcast and our Mayor Netts cites purchases at Costco to explain this. An individual goes to Costco, buys a flat screen tv, a case of water and a ham and that person pays all applicable taxes at the point of sale. Then, a vendor, buys multiple cases of water, many hams, coffee cups, and other items in bulk and uses a tax exempt certificate. The vendor then later sells the products, recoups the tax from the buyer, and has priced the discount priced items such that the vendor may realize a profit. Now, according to Mayor Netts, a Value Added Tax, such as those used in Europe, would solve this current problem presented by the OTCs. A VAT taxes a transaction at every juncture. It seems to me the hotels play a part with this as they have agreed to sell the block of rooms to an OTC at a discounted price. In return, the OTC provides advertisement the brick and mortar business may not otherwise be able to provide. What is the alternative? what if the local hotel fails to sell its rooms at the standard rate? What revenue is then available? Additionally, by selling the rooms, and appealing to the customer by offering a deal, that visitor will have more money in pocket to spend throughout the local economy. What if the OTC fails to sell all of its rooms? Is there then not a risk for the OTC to lose money? This “fairness, equity, and level playing field argument” are the same being used by the Obama Administration in an effort to impose more taxes upon the wealthy and corporations. ‘If you do to one, then do to the other’ should also be applied to the hotels. If the OTC can offer rooms at a discount, then maybe the hotels should look to their rates, too. Yes, the OTCs are advantaged with regards to brick and mortar arguments and fewer employees; but, they do pay the taxes, just at a lower rate.

  12. Magnolia says:

    Kmedley, Mayor Netts wasn’t referring to the Palm Coast Costco, was he? Mayor Netts does not think we are taxed enough?

    Somebody needs to remind him that he and the Manager did away with the only resort we had here. Not much business to book in Palm Coast these days.

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