Policy Documents

Research & Commentary: Florida’s Online Travel Agent Tax

Marc Oestreich –
July 15, 2011

Florida’s tourism industry brings in more than $60 billion each year and is the state’s most profitable industry. City and county governments in Florida, starving for extra tax revenue, say adding taxing online travel agency (OTA) service fees could bring in billions of dollars.

The Florida Department of Revenue has been asked to clarify the state’s position on these taxes. The state legislature this year rejected Florida Senate Bill 376, which would have distinguished between hotel room costs and OTA fees, outlawing taxation of the latter. Proponents of that measure say OTA services such as Expedia already pay the same hotel room taxes any other room-reserving buyers pay. Any markup would represent a tax on the agency’s service, not the room rate.

OTA taxes reduce tourism and push other businesses out of the state. The Tax Foundation’s Joseph Henchman writes, “When cities and states act in such a way toward one set of businesses, investment and economic growth can be chilled as other businesses take note.”

In addition, the service fee taxes would leave Florida cities and counties--such as Osceola and Broward counties, which have filed a lawsuit demanding lost revenue from such taxes--open to long and expensive litigation over their attempt to fill a budget hole with out-of-state dollars. Similar efforts in Georgia, Kentucky, Nevada, and Texas have all been tied up in litigation. Thus the levies result in expensive lawsuits, not revenue.

Florida legislators, the attorney general, and the Florida Department of Revenue stand to gain much by working together to ensure tourists are not victimized by double-taxation.

The following documents provide more information about online travel agent taxes.


Are Cities Being Penny-Wise and Pound Foolish with Online Travel Taxes?
http://www.consumertraveler.com/today/are-cities-being-penny-wise-and-pound-foolish-with-online-travel-taxes/
Charles Leocha, director of the Consumer Travel Alliance, argues taxing online travel agent service fees might be “penny-wise and pound foolish.” He observes similar legislation in Washington, DC would hurt the district’s economy is four ways: (1) lose advertising dollars, (2) lose tourists encouraged to book elsewhere, (3) lose special package pricing, and (4) lose tax collections from persons who have decided to take their travel elsewhere due to increased costs.

Florida Hispanic Community Says Don’t Tax My Vacation!
http://info.fshcc.com/blog/bid/52155/Florida-Hispanic-Community-Says-Don-t-Tax-My-Vacation/
Hector Herrera, a writer for the Florida State Hispanic Chamber of Commerce’s Hispanic Business Blog, argues for a statewide ban on online travel agent service fee taxes. Failing to adopt such a ban, he writes, “would create a new ‘service tax’ in Florida statute and put Florida at a severe disadvantage to other destinations.”

Cities Pursue Discriminatory Taxation of Online Travel Services
http://www.budgetandtax-news.org/article/30256
Joseph Henchman, director of state projects for the Tax Foundation, published this Special Report detailing the unintended consequences of discriminatory taxation of online travel agencies. Among other key conclusions, Henchman finds cities should not expect revenue in the short term, but instead litigation.

New Tax Under Consideration Would Force Hotel Bookings Out of State, Eliminate Jobs
http://www.interactivetravel.org/IndustryBackground/IB_MoreInformation.asp?IB=Hotel%20Occupancy%20Taxes&IndustryBackground=10009
This Interactive Travel Services Association press release criticizes a proposal in New York to levy a 20 percent surcharge above normal tax rates for people who book their New York travel using OTAs. Steve Powers of Hidden Treasures Tours is quoted in the release: “This ill-conceived tax will hurt one of our state’s most important industries, reduce the number of visitors, and cut revenue. If passed, it will drive visitors to out-of-state hotels, raise hotel prices, reduce tax revenue from visitors who stay outside the state, create massive red tape and paperwork, and eliminate thousands of good-paying hotel jobs.”

CS/SB 376: Tax on Sales, Use, and Other Transactions
http://www.flsenate.gov/Session/Bill/2011/376
Florida’s SB 376 defines what is to be considered part of hotel room “rent,” separating from that any “payments received by unrelated persons from the lessee, tenant, or customer for facilitating the booking of reservations.”

Travel Sellers Face Tax, Compliance Costs for Booking NY Hotels
http://www.travelmarketreport.com/retail?articleID=4069&LP=1
Nick Verrastro writes in the Travel Market Report about New York State’s attempt to double-tax online travel agency fees. Steve Powers, president of the Long Island Chapter of the American Society of Travel Agents (ASTA), is quoted as saying the measure “will only serve to discourage tourism to New York. The effects would be devastating to the travel industry throughout the world, which will have to collect the additional fees, and incur additional bookkeeping costs for this regressive bill. Consumers, no matter how deep their pockets, will have to pay more on already overpriced New York accommodations and receive nothing in return. Is this the message that our legislators want to send?”

Duluth vs. Expedia Suing for Sales Taxes
http://www.economist.com/blogs/gulliver/2011/05/duluth_vs_expedia
This article from the Economist highlights another attempt to take extra revenues from online travel agents. The city of Duluth, Minnesota is suing Expedia for “lost revenues.” The author points out, “Business travelers are easy to tax. We dart in and out of town, we use easily taxable amenities like airports, hotels, and taxis, and, most important, we don’t vote--at least not in our destination cities.”

Economics of Travel & Tourism Taxes
http://www.traveltax.msu.edu/intro/issues/part2.htm
This report by the World Travel & Tourism Tax Policy Center explains the direct and indirect tax contributions the tourism industry makes. It warns direct taxes on the tourism industry create distortions in the economy.

Research & Commentary: The Damaging Effects of Tourism Taxes
http://www.budgetandtax-news.org/article/25756
The Heartland Institute’s director of government relations, John Nothdurft, documents the negative effects of tourism taxes. He writes, “in order to promote tourism as part of a strong state or local economy and have a stable budget, it is vital to create a non-distorting tax code with low rates and a broad base, coupled with spending reforms.”


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at http://www.heartland.org, Budget & Tax News at http://www.budgetandtax-news.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or the Heartland Web site, contact Legislative Specialist Marc Oestreich at 312/377-4000 or moestreich@heartland.org.