MMA supports bills to close rooms tax loophole

At a hearing of the Joint Committee on Revenue on June 25, the MMA testified in support of legislation that would close a loophole that allows hotel rooms to be taxed based on a discounted price, rather than the price actually paid by the consumer.

Online travel companies generally calculate state and local hotel 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 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 online travel companies came into existence. The statute bases the excise tax to be collected on the amounts paid to an operator of a hotel or motel; it does not address Internet intermediaries.

The two bills before the Revenue Committee, H. 2602 and H. 2581, would update the statute to address transactions made through hotel room reseller websites.

“This legislation would close a loophole,” the MMA testified, “and create an equitable system of room occupancy tax payment within the industry.”

Nationally, the Center on Budget and Policy Priorities estimates that states and localities lose up to $400 million in revenue annually through online travel company hotel occupancy tax loopholes, with up to $9 million lost in Massachusetts. Online travel companies held a 14 percent hotel room market share in 2011.

Several other states have pursued or are pursuing similar legislative fixes to obtain retail-level tax revenue from online travel companies that sell hotel rooms. New York enacted legislation to close the loophole in 2010.