Cities in 22 states have taken action against online travel companies (like Expedia, Orbitz, and Travelocity) to collect unpaid hotel taxes. In a recent decision, the New York Supreme Court dismissed part of a lawsuit filed by Expedia against New York City, finding that the city has the right to apply its hotel tax to the entire amount paid by a consumer for a hotel room, including any service fee charged by an online travel company.
The dispute hinges on whether hotel taxes should be assessed on the price the consumer pays for a room or the amount the hotel receives for it. Generally, when a consumer books a room with an online travel company, only part of the amount paid goes to the hotel. The travel company pays the hotel a discounted rate and local tax on that price. It keeps part of what the consumer pays as a service fee.
The Tax Foundation has criticized state and local taxation of online travel companies as “aggressive and unjustified.”
