New Legislation Helps Support Oregon’s Tourism Industry

Story Source: Travel Salem

HB 2656 What if you didn’t pay your taxes? Chances are you would face the consequences. Why, then, was Oregon allowing out-of-state, online corporations to dodge their full tax obligations?

House Bill 2656 was introduced to the Oregon Legislature and recently passed. The bill levels the playing field for local transient lodging taxes. These taxes are paid by Online Travel Companies (OTC’s) such as Expedia and Orbitz, and local hoteliers.

The Oregon Destination Marketing Organization (ODMO) worked cooperatively to assist with the passage of HB 2656. ODMO is a non-profit organization representing destination marketing organizations (such as Travel Salem), convention and visitors bureaus, and chambers of commerce responsible for marketing specific geographic areas as visitor destinations.

Transient lodging tax dollars expended on tourism promotion and activities in our local communities have decreased during the recent economic downturn. This negatively impacts jobs and revenues for the state. One reason for the decrease is that out-of-state companies don’t pay the same amount of transient lodging taxes as our local businesses.

Currently, some rooms booked online through OTC’s do not generate the same amount of taxes as those booked directly through the hotel. In some cases, a hotel enters a contract with an OTC to provide rooms at a discounted rate, i.e. the “wholesale cost.” The OTC then posts the rooms at a higher rate to consumers. This is referred to as the “wholesale booking model.”

OTC’s typically calculate state and local hotel occupancy taxes based on the “wholesale cost” they pay to a hotel, rather than the “retail price” they charge the customer. This practice results in lower taxes collected by state and local jurisdictions for rooms booked through an OTC, rather than directly with a hotel.

If a guest books a room directly through a hotel, the tax reflects the jurisdictions rate where the hotel is located. For example, Mr. Public books a room in Anytown, USA, through a hotel’s website. The room rate is $100 and Anytown levies a 10% occupancy tax on rooms, so a total of $110 is charged to Mr. Public. The hotel then remits the $10 occupancy tax to the city.

In contrast, if Mr. Public books the same room through an OTC, the charge will still be $110 to cover the room rate, plus the OTC’s “taxes and fees.” The OTC then calculates the occupancy tax based on what it owes the hotel, rather than what it charged the consumer. Implementing the “wholesale booking model,” the OTC remits only $88 to the hotel ($80 for the contracted cost of the room and $8 for the occupancy taxes), and the OTC retains the remaining $22 from the transaction.

Many jurisdictions have become aware of this strategy and have filed lawsuits against some of the OTC’s for these unpaid tax revenues. In response, the OTC’s are seeking legislation that would protect this practice by making it a legitimate tax exemption through a federal preemption of state and local authority.

ODMO has worked with local governments, tourism promotion groups and industry members to develop a statewide standard and to ensure state and local tourism dollars are uniformly collected. House Bill 2656 will establish a statewide standard for the rate for taxes on rooms in Oregon stating, “All rooms in Oregon will be taxed at the room rate paid by the consumer.” This proposal will only apply to future sales of rooms occupied after the time of the enacted date.

HB 2656 will ensure that out-of-state companies, including OTC’s, pay the same amount of taxes as local businesses. This will help level the playing field and maximize the resources our communities have for tourism promotion.

Travel Salem would like to thank ODMO for their work on HB 2656 and for their advocacy for Oregon’s tourism industry.

photo credit: Edmund Garman via photopin cc