MMA testimony to Revenue Committee on proposed rooms tax and excise tax changes

The Honorable Jay R. Kaufman, House Chair
The Honorable Michael J. Rodrigues, Senate Chair
Joint Committee on Revenue
State House, Boston

Dear Chairman Kaufman, Chairman Rodrigues, and Distinguished Committee Members,

On behalf of the cities and towns of the Commonwealth, the Massachusetts Municipal Association appreciates the opportunity to offer testimony on several bills before the Committee today. We strongly support H. 2602, An Act Relative to Hotel Rooms Booked Online, and elements of H. 2581, An Act Relative to the Modernization of the Room Occupancy Excise. This legislation would close a loophole that exists relative to online transactions made through hotel room reseller websites and create an equitable system of room occupancy tax payment within the industry.

We strongly oppose several bills that would decrease rates or the depreciation schedule of the motor vehicle or boat excise taxes, including: H. 2623, An Act Relative to the Fair Administration of the Motor Vehicle Excise Tax; H. 2562, An Act Relative to the Excise Taxes of Motor Vehicles; S. 1450, An Act Eliminating the Motor Vehicle Excise Tax in the Fifth and Succeeding Years; and H. 2543, An Act Relative to Marine Vessels.

In addition, the MMA opposes H. 2737, An Act Relative to Motor Vehicle Excise Exemptions, which would exempt from the motor vehicle excise tax vehicles owned by a corporation exempt from personal property taxation, if the vehicle is operated exclusively with the corporation’s tax-exempt operations.

Hotel Rooms Booked Online
Because of a glaring loophole, when a hotel reservation is made through an online hotel room reseller, the tax that is collected is based on an artificially low room rate, not on the room rate that the consumer actually pays. Online room resellers generally calculate state and local occupancy taxes based on the wholesale cost that they pay to a hotel for a room rather than the retail price that they charge a consumer. This Internet reseller business model of contracting for hotel rooms at a wholesale cost and selling them to the end-consumer at a premium allows a portion of the price paid by the consumer to escape state and local hotel occupancy taxes.

The current Massachusetts room occupancy statute, Chapter 64G, has been in effect since 1966, well before the Internet and well before the concept of online reselling or Internet intermediaries existed. The statute bases the excise tax to be collected on the amounts paid to an operator of a hotel or motel. What happens now is that Internet resellers pay lower room rates to hotels and motels, then mark up the price when they charge the consumer, but collect and submit taxes based on the lower wholesale room rate, not the real and actual room rate paid by consumers.

Nationally, the Center on Budget and Policy Priorities estimates that states and localities lose up to $400 million in revenue annually through online room reseller tax loopholes, and up to $9 million in Massachusetts. Room rentals booked through online room resellers represent a significant and increasing share of the market – 14% of the market share in 2011. We respectfully and strongly request that the Committee favorably report H. 2602 to close this expensive and inequitable tax loophole.

Motor Vehicle and Marine Vessel Excise Taxes
Several bills before you today, including H. 2623, H. 2562, and S. 1450, would change current law relative to the excise tax on motor vehicles by altering the percentage-based fee structure that correlates with the age of the motor vehicle, further decreasing taxes due as vehicle age increases. H. 2543 would cut in half the excise tax rate for marine vessels, from $10 per $1,000 of valuation to $5 per $1,000 of valuation, and establish an accelerated depreciation schedule. H. 2737 would create a new tax exemption, allowing motor vehicles owned by a corporation exempt from the personal property tax to qualify for exemption from the motor vehicle excise tax if the vehicle is used exclusively for the corporation’s tax-exempt operations. Each of these changes would result in diminished excise tax collections at the local level, which would have an unnecessary negative impact in our cities and towns. In short, passage of any of these bills would slash local motor vehicle and marine vessel excise revenues, and reduce municipal revenues. This would force cities and towns to either cut existing services or impose higher property taxes on residents in order to make up for the lost revenues. Therefore, we respectfully and strongly request that the Committee give these bills a negative report.

The MMA appreciates your leadership on fiscal policy issues to protect municipalities, taxpayers and the Commonwealth. If you have any questions regarding these issues, please do not hesitate to have your staff contact John Robertson or Catherine Rollins of the MMA staff.

Thank you very much.

Sincerely,
Geoffrey C. Beckwith
Executive Director, MMA