Travel websites say hotel tax change will hurt tourism

Hartford - A proposed change to the state's hotel room tax law that would cut into the revenue of travel websites like Priceline and Expedia is eliciting dire predictions from those Internet businesses.

"This bill is a tourism killer," Christopher Soder, president and chief executive of Priceline.com's North American travel business, told lawmakers recently. "It will chase away tourists."

But the legislation's proponents, including state Rep. Elissa Wright, D-Groton, are shrugging off such forecasts as defensive rhetoric from an industry that wishes to keep a lucrative "loophole" in the law that pre-dates the Internet and gives online room-bookers an advantage over a hotel's reservation staff.

Their legislative fix would force the websites to stop pocketing the difference between the occupancy tax they charge customers for a room, and a lower amount that gets passed on to the state and is based on a room's wholesale price.

For instance, the state's 15 percent occupancy tax means that a person who walks up to a reservation desk and buys a $100 room gets a $115 bill. The hotel must remit to the state the $15 tax.

Customers would still be charged $115 for the $100 room if they booked the reservation using a travel website. But the tax the state gets would be calculated off the wholesale price for the room. If the wholesale price, which is the room price that the website pays, were $75, the travel site still would charge the $15 tax, but it would give just $11.25 to the hotel to remit to the state and would keep the difference, $3.75.

However, Norwalk-based Priceline and trade groups including NetChoice Coalition and Internet Alliance insist that the money the websites collect, the difference between the retail and wholesale tax rates, is actually a "service fee" for facilitating the reservation and researching comparison prices.

As such, it should remain off-limits to the proposed "new tax," they contend.

At a hearing last week before the legislature's finance committee, Soder said that if travel sites are compelled to remit to the state the disputed money, the prices of Connecticut hotel rooms would increase and visitors would go elsewhere - hurting not only local hotels, but also tourist attractions.

"We've found over the years that when prices go up 1 percent, it usually equates to a 2 percent drop in business down the road," the Priceline executive said. "If that rule plays out with the imposition of this tax, it could mean a net drop of up to 4 percent in Connecticut room nights."

Soder also said the proposal would hurt travel websites' ability to employ resources and extend the marketing reach of the state's hotels and destinations.

Commissioner of Revenue Kevin Sullivan defended the bill last week. He told legislators that it would bring fairness to the state's occupancy tax laws by ensuring that travel sites, like hotels, remit the full tax on the room rate customers pay. He does not buy Priceline's argument that a portion of that money is not a tax but a service fee.

On Friday, Sullivan said he is not precisely sure how much additional revenue the state would gain if the legislation passes, but said it could be as much as $7 million a year.

Yet Soder, the Priceline executive, estimates the state's benefit at just $600,000 to $800,000 annually.

New York is one of a handful of states that have passed laws requiring travel websites to remit occupancy tax based on the full retail price of the room.

Rep. Wright said she is pushing the bill because the state's tax system should be updated for the Internet age.

With the existing system, Wright said, Priceline and other room resellers are able to dodge taxes by using semantics, labeling the charge a service fee. The maneuver allows them an additional revenue stream on top of the profit they make from the normal markup of rooms from the wholesale to retail level.

"We think it's important that when customers purchase something, regardless of the way they purchase it or the technology they use to purchase it, they should be taxed equitably," Wright said.

She disagrees with Priceline's claim that changing the system would result in higher hotel room costs.

"To remain competitive, it is not likely that increment could be passed on to the consumer," Wright said.

The Connecticut Lodging Association, representing about a quarter of the state's hotel rooms, strongly supports the legislation.

"I think it's a tax fairness issue," Executive Director Ginny Kozlowski said. "We would expect that they [Internet firms] contribute 15 percent, just like our properties do."

The association did not know the percentage of state hotel rooms purchased via travel websites.

Hotel chain Marriott International, which has 43 Connecticut hotels, also supports the bill.

Chuck Moran, regional manager for the Waterford Hotel Group and the lodging association's past president, said he backs the bill because Internet firms may now market rooms at the same rates hotels do, but can get more revenue off the sales by remitting the lower occupancy tax.

"This bill will close the loophole and level the playing field," Moran said.

j.reindl@theday.com

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