Florida jumps into fray over online hotel taxes

Florida lawmakers are poised to make sure online travel companies such as Expedia and Travelocity won't have to pay a larger share of local hotel taxes. Here, art deco design hotels are bathed in neon light on Ocean Drive in Miami Beach, Fla.
Florida lawmakers are poised to make sure online travel companies such as Expedia and Travelocity won't have to pay a larger share of local hotel taxes. Here, art deco design hotels are bathed in neon light on Ocean Drive in Miami Beach, Fla. Lynne Sladky / AP
/ Source: The Associated Press

Two years ago, Florida joined dozens of other states and municipalities in suing online travel companies for a bigger chunk of local hotel taxes. This spring, though, the state's Republican Legislature seems poised to do an about-face.

The passage of bills in Florida siding with online travel operations such as Expedia, Orbitz and Priceline would be a significant victory for the industry in a conflict that has dragged on for years and led to a patchwork of lawsuits and contradictory court decisions around the country. About 9 percent of the nation's 4 million hotel rooms are in the Sunshine State, where tourism is $60-billion-a-year industry.

The bills in the Republican-led Florida Legislature would exempt the online companies from paying a larger share of hotel occupancy taxes. A similar measure stalled in the Senate last year, but backers are buoyed this spring by the militant anti-tax tone set by new Gov. Rick Scott and other new conservative faces in the chambers. The session starts March 8.

But lawmakers will act at the risk of angering Florida's hotel and lodging industry, which says shielding the out-of-state sellers from paying more gives the companies an unfair competitive advantage and could ultimately lead to higher taxes as cash-strapped local governments try to make up the revenue.

Online travel companies make money by negotiating discounts from hotels and then selling the rooms to consumers at a higher rate. States and municipalities say they are losing tax revenue because the online sellers pay local occupancy taxes only on the wholesale price of the room, not the full rate they charge consumers.

For instance, if an online company negotiates a rate of $100 per night and sells the room to a traveler for $120 per night, it pays occupancy taxes only on the $100 at the time the room is booked. In Florida, state economists estimate the loss of revenue to state and local governments amounts to $20 million a year.

The online companies consider the difference a booking fee that's not subject to local taxes.

"An online company is not a hotel," said Andrew Weinstein, spokesman for the Interactive Travel Services Association, which represents online travel companies. "It's not in the business of renting rooms and managing properties, and it was not intended to be a collector of these taxes."

There is certainly no consensus on the issue.

If the bill is passed, Florida would follow Missouri as the second state with a law favoring the online sellers. Some states and municipalities, most notably New York City and Washington, D.C., have gone the other way, passing measures that extend occupancy taxes to the online companies. Judges have sided with the industry in most of the cases already decided by the courts, and another 40 to 50 lawsuits — including the 2009 Florida action — are still pending nationally.

A federal class-action suit against 15 online travel companies in Monroe County, which includes the Florida Keys, was settled last year for $6.5 million, split among 32 Florida counties. The deal does not require the companies to start paying taxes for the full room price, but temporarily precludes the counties from suing some of the online companies.

State Sen. Don Gaetz, who sponsored the bill in the Florida Senate, said it's critical to remove any barriers to increasing hotel bookings in his Florida Panhandle district whose tourism industry took a one-two punch from the recession and Gulf oil spill last year. Moreover, he hopes a state law will definitively settle the rancorous issue here, instead of relying on the courts or the federal government to do something about it.

"I'm optimistic we will come to some solution," Gaetz said. "I don't believe that the way to improve our tourist economy is with a tax increase."

While hotels have to deal with third-party online sellers to keep their properties full, they also are competing with them for consumers' online business. So, the lodging industry argues that the online companies are not carrying their fair share of the local tax burden, which they say could result in the hotels — and their guests — paying more.

"As hotels, we think if this goes through, if Florida passes this thing, what this is going to result in is the hotels paying the difference," said Shawn McBurney, senior vice president of governmental affairs for the American Hotel & Lodging Association. "It's eventually going to get passed on to the consumer."

The online travel industry unsuccessfully shopped a federal measure in Congress last year that would have exempted them from paying any additional taxes. But Weinstein said the cause is being boosted by a new wave of conservative elected officials around the country who swept in last fall with a clear anti-tax message.

"I think you have reinforcing waves of anti-tax and pro-tourism (sentiment), and legislators are realizing how critical the tourism industry is for local revenue," Weinstein said. "And I think they are generally disinclined to pass new taxes that could hurt that revenue stream."