- Days left

Broke cities accuse Travelocity, Priceline and other sites of dodging local taxes

Are sites like Expedia, Priceline, and Travelocity only paying a fraction of the taxes they owe for hotel bookings? A lot of American cities think so.

Hotel web bookers such as Orbitz, Travelocity, Expedia, Priceline, and Hotels.com all buy hotel rooms at a wholesale price. When a customer like you or me buys a room through them, we're actually often paying a rate that's marked up from what the website originally paid to obtain it (but a rate that's still probably lower than what we'd have to pay if we did it on our own). That's how the sites make money.

As budgets tighten, cities have decided they don't like the current set-up. They get tax on the wholesale price that Orbitz & Co. are paying on the rooms, but they want tax based on the final, higher price paid by the guest. Count Broward County, Florida, which includes Fort Lauderdale and Wilton Manors, as the latest American destination to pig-pile on the internet travel sellers. Atlanta, Philadelphia, Miami, Houston, Los Angeles, San Antonio, and Chicago also want a piece of the tax action. Even a coalition of counties in Maryland and New Jersey, not normally known as a big tourism centers, are clamoring at the benches of the U.S. District Court for a ruling.

The websites don't want to open the books too wide on this one, partly because it will mean they will have to reveal the trade secrets of just how little they pay for those rooms and how much they jack up the rates we see. But so far, court rulings have not settled the matter. Last month, a U.S. Court of Appeals refused to hear the case brought by Pitt County, NC, which was interpreted as a victory for the dot-coms.

But some of the lawsuits are accusing the websites of charging tax on the higher, inflated rate when in fact they're only sending the cities the tax on the lower, wholesale price. If that's true, what's happening to the tax on that markup? It makes a difference, since it's estimated that online travel sellers accounted for 61% of travel booked these days.

It all boils down to what you believe the purchase price is in this case. Is it the one paid by the middle-men, or the one you paid when you reserved online? The online sellers contend that they're not the ones renting the rooms out, so they shouldn't have to remit the tax on their profit, which is essentially a service charge.

Not every tourist destination is complaining. Manatee Country, Florida, where Sarasota and Bradenton are, is perfectly happy with the current system. Why? Because it doesn't have many corporate hotels or conference centers, which are far more likely to discount for the websites and are therefore open to disputes over changing prices.

So what do you think? Should you be paying tax on what the room is essentially worth, on what the room price can be inflated to be? Is your city being cheated out of rightful tax income? In the end, it's your money we're talking about.

Increase your money and finance knowledge from home

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

TurboTax Articles

11 Fun Ways to Spend Your Tax Refund

There are plenty of practical ways to spend your tax refund ? such as saving for major expenses, banking it as the start of an emergency fund or paying down debt. But it?s hard to resist the allure of spending some or all of your refund on something a little more fun. If that?s the road you want to go down, here are some ways suggestions.

A Tax Filing Factsheet for eBay Sellers

You can find almost anything for sale on eBay, from a piece of fine art to clippings of Justin Bieber?s hair. So it's no surprise that the IRS doesn't view all sellers alike in the online marketplace. You may not have to pay tax at all if you are essentially hosting an online garage sale, but if you run your eBay account more like a business, you should be reporting your sales to the IRS.

Tax Tips for Handymen and Odd Jobs

If you work as a handyman or do odd jobs around town for money, you are operating a business in the eyes of the IRS. Since you own your own business, you're likely a self-employed sole proprietor. This means you'll have lots of potential tax deductions to investigate.

Identity Theft: 7 Steps to Reclaiming Your Identity and Keeping it Safe

As more personal information continues to be stored online, the risk of identity theft also increases. In 2014 alone, the Bureau of Justice reported that 17.6 million U.S. residents experienced identity theft. If someone uses your personal data pretending to be you, it's a serious crime. With quick, decisive action, you can help discover the fraud, stop further damage and reclaim your identity. Here are six steps to get you on your way.