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AH&LA Expresses Strong Opposition to Draft Legislation Known as the
“Internet Travel Tax Fairness Act” / Issues Brief and Talking Points

March 2010 - AH&LA is strongly opposed to draft Federal legislation that would prevent state and local governments from collecting room taxes from online third party intermediaries (TPIs) when hotel rooms are booked through such TPIs. If enacted, such legislation would place hotel companies at a competitive disadvantage with respect to marketing their own rooms and potentially subject hotel companies to massive tax increases as State and local government seek to replace the revenue lost as a result of the TPIs’ tax exemption preference that would be codified by the legislation, further harming an already struggling U.S. hospitality industry.
Non-industry members who wish to write to their federal lawmakers about this issue can find a sample letter template on this Webpage.  AH&LA members can use the hotelLOBBY grassroots Website to send an email directly to their House or Senate members.

Online travel companies typically choose to 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 they receive from the customer for the room.  This practice results in lower taxes collected by state and local jurisdictions for rooms booked through an online travel company, rather than directly with a hotel, because the tax calculation is based on the lower wholesale amount.

Many jurisdictions have become aware of this strategy and have filed lawsuits against some of the online travel companies for what they contend are unpaid tax revenues.  In response, these companies are seeking legislation that would protect this practice by making it a legitimate tax exemption through a federal preemption of state and local authority.
Many hotels contract with online travel companies in order to increase their occupancies.  These companies include Expedia, Orbitz, Travelocity and others, and are referred to as “third party intermediaries” (TPIs) in the example below.

In some cases, a hotel enters a contract with a TPI to provide rooms to the TPI at a discounted rate (the “wholesale cost”).  The TPI then posts the rooms for sale at a higher rate to consumers.  This is referred to as the “wholesale booking model.”  In other cases, a contract between a hotel and a TPI may follow the “commission model” (described below), which is similar to the model used by traditional travel agencies.  When using the wholesale booking model, a TPI advertises a room to consumers at a rate higher than its wholesale cost and includes unspecified taxes and fees in its final price.  This is the center of the dispute.

Direct Hotel Booking

If a guest books a room directly through a hotel, the tax reflects the jurisdiction’s rate where the hotel is located. 

For example, assume John Q. Public books a room in Anytown, USA online through a hotel’s own website.  The room rate is $100 and Anytown, USA levies a 10% occupancy tax on rooms, so the amount charged Mr. Public is $110. 

The hotel then remits the $10 occupancy tax to Anytown.

Third Party Intermediary

Wholesale booking model.  If John Q. Public instead books the room through a TPI, he is charged the same $110 amount that he would have paid had he booked the room directly through the hotel’s own website.  This amount covers the room charge plus the TPI’s “taxes and fees.”

However, instead of remitting $10 in hotel occupancy taxes, the TPI calculates the occupancy tax based on what it owes the hotel rather than the advertised cost to the consumer.   Thus, when a consumer pays $110 for the room through a TPI, the TPI remits $88 to the hotel ($80 for the cost of the room and $8 for the occupancy taxes).  The TPI retains the remaining $22 from the transaction.

Commission model.   Under the commission model, the guest pays the retail room rate to the hotel, and the hotel pays a commission for bookings secured by TPIs.  Currently, the tax is calculated on the room rate and leads to the same taxes paid as rooms sold directly by hotels.  In the above example, the hotel would receive a total of $110, and remit $10 to the taxing authority and pay $20 to the TPI.

In each example, the hotel provides to the taxing jurisdiction the taxes paid by the TPI to the hotel.  In the wholesale model example above, the hotel passes through to the jurisdiction the $8 paid by the TPI—as opposed to the $10 the hotel would remit if the room was booked directly through its own website (or through a TPI in a “commission model” transaction).  The TPIs consider the resulting difference between the calculations based on the final price charged to the consumer and the wholesale cost of the room (i.e., the $2 difference in the wholesale model example above) as part of their "service fee."  As discussed below, legislation that the TPIs are seeking would mandate their calculation of hotel occupancy taxes under the wholesale model by federal statute, and would alter the tax collected under the commission model to conform to this calculation.

This chart may help readers further understand the two situations:

Local tax authorities become involved

Many jurisdictions throughout the country have initiated lawsuits against the online travel companies because of this practice.  The City of Columbus, Georgia recently won a suit against Expedia, in which the court found that Expedia should pay taxes to the city based on the advertised room rate, not the lower wholesale cost.  Litigation initiated by the City of San Antonio, Texas had a similar outcome.

Subsequent to the Columbus, Georgia decision, Expedia, Orbitz, Travelocity,, (and possibly others) delisted hotels in Columbus.  When an Internet search through these Websites is performed for Columbus, results instead are provided for Phenix City, Alabama, and other jurisdictions.  This delisting also has occurred in other jurisdictions.

In addition to litigation initiated by local and state tax authorities, many private consumer protection lawsuits have been filed against some online travel companies contending that consumers who booked rooms through these companies using the wholesale model were misled on charges (the amounts labeled as “taxes and fees”).


Some online travel companies are pressing for Federal preemption legislation that would prevent taxing authorities’ ability to collect taxes from these companies.  The legislation would not only exempt online travel companies from remitting as tax the purported "service fee" (i.e., the $2 in the above example), but is written in such a way that it may also exempt the payment of any occupancy tax on rooms booked through online travel companies.

Online travel companies contend that this legislation would prevent thousands of different jurisdictions from imposing different taxes on this type of wholesale hotel booking and limit that taxing authority to the 50 States.  Yet, hotels would still be required to remit taxes to all taxing jurisdictions—over 7,000 in the United States.

Hotels discriminated against

The legislation specifically bans hotel Internet booking from equal tax treatment under the law.  While the legislation creates a special tax category for TPIs, hotels and hotel companies would be prevented from the tax category.

Cities and other jurisdictions that were restricted by the federal government in exercising their tax authority on TPIs would in all likelihood raise taxes on hotels to make up for the resulting budget shortfalls caused by that preemption.  Hotels would in essence be punished for being diligent, following the law, and paying their taxes.

Legislation that discriminates against hotels by exempting online travel companies from paying occupancy taxes will potentially subject hotels to massive tax increases as State and local governments seek to replace the lost revenue. 

Although hotels pay all the taxes they owe and have not had their actions questioned, they will be the ultimate victims of this legislation.


On December 17, 2009, AH&LA sent a letter to the House and Senate to express the association's strong opposition to draft legislation (sometimes referred to as the “Internet Travel Tax Fairness Act”) that would prevent state and local governments from collecting room taxes from third party intermediaries (TPIs) when hotel rooms are booked through such TPIs. 

As the representative of an industry which employs tens of thousands of Americans, AH&LA strongly opposes legislation which would specifically target the lodging industry to place it at a competitive disadvantage and which potentially would subject lodging properties throughout the United States to massive tax increases.  AH&LA continues to oppose the proposed Internet Travel Tax Fairness Act. 

At this time, no legislation has been formally introduced in either house.

Third party intermediaries are also sometimes referred to in literature on this topic as Online Travel Companies (OTC) or Online Travel Agencies (OTA).

For more information, contact AH&LA Senior Vice President for Governmental Affairs Shawn McBurney at (202) 289-3123,



Also See: Agenda Set for the AH&LA's Legislative Action Summit March 15-16, Washington D.C.; Summit To Conclude With AH&LEF Dinner Tribute Honoring Stewart Bainum, the Founder of Choice Hotels International / March 2010

Driving Force Behind Choice Hotels International Stewart Bainum, Sr. Honored for Decades of Charity Work in Montgomery County, Maryland / October 2009

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