Thousands of Americans use services such as Texas-based Hotels.com and Travelocity.com to take advantage of lower prices for hotel rooms. It’s just one of many ways shopping on-line has resulted in more choice and lower prices for Texans.
But some tax-greedy politicians see those lower hotel prices as lost revenue to the state treasury—lost revenue that they are entitled to reclaim. They fail to see that these services help fill the 40% of rooms that go empty each night, which of course means more tax revenue overall. Nevertheless, these politicians aren’t taking this perceived loss of revenue lying down.
Several local jurisdictions in several states went to court to force hotel-booking Internet companies to pay occupancy tax on the value of the room plus the same occupancy tax on the service fee charged by the Web site, rather than on the price the consumer actually paid for the room (the appropriate basis to which to apply an OCCUPANCY tax). As the courts threw out the cases, the trial lawyers behind the scene switched to lobbying state legislatures. Some in the Texas House are falling for this shell game.
How well would this ridiculous model work in the brick-and-mortar world?
Suppose you drop by your corner store to pick up some milk. Because it is Cinco de Mayo, you add a package of firecrackers for some evening fun. The clerk rings you up and happily announces you owe 10.25% tax on the whole purchase (8.25% sales tax + 2.0% fireworks tax). When you point out that milk is not fireworks, the clerk smiles and asks for the 10.25% tax anyway.
Service fees are not part of the cost of a hotel room. In fact, the Texas Comptroller makes clear that the Texas hotel tax is “A tax is imposed on a person who pays for a room or space in a hotel costing $15 or more each day. Local hotel taxes apply to sleeping rooms costing $2 or more each day.”
No room— no tax. Room?— tax. Simple.
Such tax policies are simply a case of tax discrimination against Internet commerce, most often hurting small inns and bed and breakfast homes the most as they see big cost increases for potential guests.
To greedy officials supporting this technological discrimination, remember: Ludicrous cases aren’t the only things that can be “thrown out” when voters get fed up with never-ending discriminatory schemes to tax them.
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Today's TechByte was written by Bartlett D. Cleland, Policy Counsel with the Institute for Policy Innovation.