Legislature Overrides Hogan’s Veto Of Online Travel Tax Bill

ANNAPOLIS — A third party hotel bookings sales tax bill that Governor Larry Hogan vetoed last year will now become law after that veto was overridden by the Maryland House of Delegates and Senate on Thursday.

Senate Bill 190, one of six pieces of legislation that was vetoed last year by Maryland Gov. Larry Hogan, aimed to level the playing field and clarify the existing laws on the books when it comes to booking hotel rooms online in the state.

Supporters claim the bill is needed to close a loophole in sales tax collection as hotels charge the tax on bookings made through their own websites and then pay money to the state.

Third party sites like Travelocity and Expedia don’t have to do that, and that has people like Senator Richard Madaleno, who represents Montgomery County and spearheaded the bill and the override effort, crying foul for Maryland consumers.

“Imagine if you found out a neighborhood store was charging you sales tax and in the end was pocketing part of it and only sending part of that to a state,” Madaleno said in a video pitch released last week to supporters of the override effort, “you’d be pretty upset.  They are hiding behind a loophole in the law that they claim allows them to pocket part of that money that you, the consumer, have already paid.”

From a more technical perspective, online travel companies and hotels collect the same amount of money when a room is booked. Furthermore, hotels remit sales tax based on the rate advertised to and then collected from the consumer. When a transaction is made using an online travel company, or OTC, the tax that is remitted is based on the pre-negotiated or quasi-wholesale rate that OTCs pay hotels for the room and essentially pocket the difference, which is estimated between $3-5 million annually.

Hogan vetoed the bill because the issue has been tied up in court in the Comptroller’s office’s Travelocity v. Comptroller case and wanted to “respect a longstanding practice of not passing legislation that would directly affect matters being litigated in a pending court case,” according to his letter to Senate President Mike Miller on May 22, 2015.

Susan Jones, executive director of the Ocean City Hotel-Motel-Restaurant Association, said she agrees with the governor.

“It’s a tax issue and something that shouldn’t be lobbied on the floor, it should be handled in a courtroom,” said Jones, “because what will happen is that if this online sites lose and have to pay more tax, they are going to raise their rates.”

Philip Minardi, Vice President of Communications and Public Affairs for Travel Technology Association, called the override a “clear signal to Maryland taxpayers who demanded a new direction during the last election that many in Annapolis didn’t get the message.”

Minardi claims that the bill will increase taxes on over 200 community travel agencies and countless travel service providers.

“Because of today’s vote, Maryland’s tourism economy will pay the price,” he said. “Maryland taxpayers who travel in-state will pay for these taxes in the form of higher room rates.”

However, Hogan, in an interview from May 2015, doesn’t see the bill as a tax increase.

“It doesn’t cost Maryland taxpayers anything at all. The online companies are charging a fee, a tax if you will, and not remitting that to the state,” Hogan said. “The consumers are already paying that money and the OTC’s are skimming it off the top.”

Madaleno and other supporters of the bill say this fixes a loophole that was never intended to be created when the tax system was create.

“These tax dollars, which go to promote Maryland tourism shouldn’t be going out of state into the pockets of a handful of companies who run these online travel companies,” said Madaleno.

Jones worries that the rate hikes will impact independent hoteliers that utilize OTC’s the most.

“Seventy-five percent of our members are independent hotels,” said Jones. “This is going to impact a lot of people because the OTC’s won’t raise the franchise commission rates, they’ll do it to the independents.”

The veto of the bill was overridden by a 30-16 vote of the Senate and an 89-52 vote of the House of Delegates.

Minardi expressed disappointment that the legislature has maintained its typical approach to small business.

“Whether you understand 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,’” said Minardi. “Despite Governor Hogan’s best attempt to stave off yet another tax increase, the legislature just could not help themselves. If the last election cycle is any indicator, voting for this new tax will surely be a factor in the next election.”

About The Author: Bryan Russo

Bryan Russo returned to The Dispatch in 2015 to serve as News Editor after working as a staff writer from 2007-2010 covering the Ocean City news beat. In between, Russo worked as the Coastal Reporter for NPR-member station WAMU 88.5FM in Washington DC and WRAU 88.3 FM on the Delmarva Peninsula. He was the host of a weekly multi-award winning public affairs show “Coastal Connection.” During his five years in public radio, Russo’s work won 19 Associated Press Awards and 2 Edward R. Murrow Awards and was heard on various national programs like NPR’s All Things Considered, Morning Edition, APM’s Marketplace and the BBC. Russo also worked for the Associated Press (Philadelphia Bureau) covering the NHL and the NBA and is a critically acclaimed singer/songwriter and composer.