San Francisco has an easy fix for the wrenching hotel-tax issue: Just have the hotels make sure that the online travel agencies are paying the full amount.
Sounds simple, right?
The city sent a letter to area hotels last month stating that hotels and the online travel companies are jointly responsible for making sure that the city takes in transient occupancy tax (TOT) on the full amount that hotels guests pay to the OTCs.
The OTCs have been remitting the hotel tax on the net rate they get from hotels and not on the full retail rate that consumers pay — and the OTCs have been sued by cities, including San Francisco, across the country.
The letter, from the San Francisco Office of the Treasurer & Tax Collector to area hotels, states:
“Under local law, the OTCs and hotels are jointly responsible for remitting the correct amount of TOT to the City. To this end, we encourage you to make arrangements with any OTC with which you do business to ensure that the TOT remitted to the City is based on the full amount paid by hotel guests to the OTCs.
“You should ensure going forward, that all OTCs with whom you may be doing business, including those listed below, remit the full amount of the TOT.”
The OTCs listed — some of which no longer are doing business — are Expedia.com, Hotwire.com, Travelocity.com, Site59.com, Priceline.com, Travelweb.com and Lowestfare.com.
What power do the hotels really have in pressuring online travel agencies to pay more hotel taxes?
The letter puts the hotels in the precarious position of having to cease doing business with their OTC partners — or risk enforcement action if the OTCs continue to remit occupancy tax on the net rate only.
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This letter is the exact reason why hotels should support passage of a Federal solution to this crisis. ITTFA will ensure that OTCs are no more liable for hotel room rent than hoteliers want to be responsible for OTC service fees.
The chains are siding on the side of the localities but they picked the wrong partner in this fight. OTCs create demand locally and help drive table revenue. The chains should be protecting the existing way of doing business and not trying to tax demand creation businesses like OTCc.
The lodging industry has suffered in this weakened economy. Online Travel Companies (OTCs) such as Expedia, Orbitz, Travelocity, and others are playing a vital role in boosting room sales in these difficult times. The heads OTCs put in beds often is the difference between profitability or loss for many hotel operators.
OTCs help market hotel rooms to prospective customers all over the world. Independent hotels can’t match large corporate hotel’s marketing war chests, thus they rely heavily on OTCs to compete with branded hotels. Without a robust OTC channel, independent hoteliers will be put at a competitive disadvantage with chain hotels. It’s critical that OTCs not be marginalized as it would diminish the ability of independent hotels to compete effectively.
Hotels, with the help of Online Travel Companies, boost the local economy by supporting jobs and increase tourism. When people travel, many supporting businesses benefit. Every effort must be made to stimulate the economy and job growth. ITTFA will help boost internet hotel sales and get people traveling again.