Imagine if Maryland implemented a new tax that made hotel rooms more expensive — a tax that not one surrounding state had on the books. Would price conscious travelers still stay in National Harbor over price-competitive Old Town Alexandria when visiting Washington, D.C.? Would beach-goers stay in Ocean City over the more competitive Delaware beach? That might be the easiest economics question ever posed: In a region with so many options, of course travelers could drive the short distance to less expensive destinations.
Yet bills currently making their way through the Maryland legislature don't see it that way. Bills introduced recently in the state Senate and House of Delegates would implement a tax increase in the form of a new levy on the service fees of online travel agents (OTAs), brick-and-mortar travel agents and other local travel service providers. The Maryland Senate's S.B. 190 and companion in the House of Delegates H.B. 1065 would add a new tax on travel services, ultimately making Maryland travel more expensive and less competitive.
Similar taxes have been considered in states across the nation over the years. But, last year, not one state thought it a wise idea to saddle their travel ecosystem with more taxes. And just this month, both chambers of the Virginia legislature declined to implement a new travel tax, recognizing that taxing your way to economic prosperity was probably not the right route to go. According to a recent study, a 1 percent increase in room rates results in a 2 percent reduction in bookings. But this is nothing new here in Maryland. Visitors to Ocean City have seen how many tourists drive over the state line to shop in Delaware to avoid paying Maryland's sales tax. Will the same thing happen if a new services tax is placed on Maryland travelers and accommodations? Leisure travelers are hyper-sensitive to price and are quite willing to drive a few miles to stay in another state to save money on lodging. In the mid-Atlantic region especially, travelers have many options.
The reality is simple, and the numbers are staggering: Just last year, online travel agents helped travelers from around the world book well over 1 million room nights in Maryland hotels. Of those, over 25 percent, or over 250,000 room nights, were booked by Marylanders in Maryland properties. These new taxes are not new taxes on out-of-state companies; they are taxes on Maryland travelers and Maryland small businesses.
Yet in spite of the evident detriment to travelers and local small businesses, some still cling to the misguided idea that these new tax initiatives are simply "closing a loophole." There is no loophole. Online travel agents currently pay all applicable taxes, and this fact has been challenged and upheld in dozens of courts across America.
Others cling to the inaccurate idea that OTAs buy rooms in bulk at wholesale rates and resell or rent them at retail rates. They do not. OTAs have no control of a hotel's inventory nor are they ever responsible for hotel inventory. This is a major misconception that needs to be clarified. Marriott's own representative recently confirmed this in testimony before a state Senate hearing saying, "When we say wholesale, it's not the most apt analogy. Expedia doesn't pre-pay Marriott for rooms. ... We open that inventory, it's our inventory." Furthermore, courts across America have confirmed the same. A recent Wisconsin court found, "there was no factual basis to find that Orbitz was in the business of 'reselling' rooms." It's important to clarify this inaccuracy because it establishes the basis for which taxes are calculated, levied and remitted. The hotel sets the rate for the room that the consumer pays, not the online travel company. Ultimately, the facts and the courts agree the proper taxes are being collected and remitted by online travel agents.
As travelers begin to book travel for upcoming Memorial Day and spring break vacations, many will turn to online travel agents to dream, search, compare and book travel options. If Annapolis passes these new taxes, and Gov. Larry Hogan signs them into law, Maryland's entire travel economy will suffer, as will the communities that rely on the business generated by travel and tourism. Instead of new and onerous taxes, Maryland should work with travel technology innovators and local travel agents to promote and market local destinations, not stifle tourism and growth with burdensome new taxes.
Steve Shur is president of the Travel Technology Association. He can be reached at firstname.lastname@example.org.