Sales Tax Loophole Bill Nears Approval

OCEAN CITY — Following an affirmative vote by the Senate last week, the House Ways and Means Committee on Wednesday voted to approve legislation applying the state sales tax to the service fees of online and traditional travel agencies.

Last week, the Senate approved the bill that would ostensibly close a loophole that allows accommodations booking companies to remit less sales tax to the state then their traditional counterparts by a vote of 32-15. On Wednesday, the House Ways and Means Committee voted to approve the legislation, moving it closer to a vote by the entire House.

Senate Bill 190 would clarify the definition of “taxable price” for the sales and use tax as it applies to third party vendors such as Orbitz, Expedia or Priceline, for example, which buy blocks of hotel rooms at a whole sale price and sell them to consumers at or near the regular retail price. Online travel agents (OTAs) buy blocks of hotel accommodations in areas like Ocean City, for example, at lower wholesale rates and then sell them to consumers at higher rates.

However, a loophole in the current low allows the OTAs and brick and mortar travel agencies to remit to the state the sales and use tax only on the discounted rate and not the entire rate charged to the consumer. The lodging industry, including the Ocean City Chamber of Commerce and the Ocean City Hotel-Motel-Restaurant Association, among others, believes the legislation will level the playing field without any added expense to the consumer.

However, the online travel agencies have called the bill a blatant “new tax” in their opposition to the legislation. After the House committee vote on Wednesday, Travel Technology Association spokesman Philip Minardi lashed out the proposed legislation.

“In an attempt to sell a new tax to a Maryland public tired of the state’s tax and spend ways, the proponents of Senate Bill 190 have masked it as simply closing a loophole, stating that online travel companies collect, but do not remit, the proper amount of taxes,” said Minardi this week. “The reality is, every single court that has examined the issue has concluded that online travel agents collect and remit the proper amount in taxes.”

Minardi said the bill is essentially a new tax thinly disguised as closing a loophole.

“As we dispense with these blatantly false assumptions, we see this bill for what it truly is, a new tax on the Maryland economy,” he said. “And whether you agree that local small businesses will be harmed by this new tax or not, today’s vote sends a clear message to the rest of the country that Maryland has not changed its taxing ways and is still not open for business.”