Tax bill could close loophole for online lodging providers

For the savvy traveler, it’s no secret that lodging rates offered by online travel services are usually cheaper than a hotel’s standard price. The costs of such savings, however, may be coming out of the destination’s local tax revenue.

Sponsored by Rep. Greg Davids (R-Preston), HF3411 would apply lodging taxes to accommodation intermediaries and any other related lodging services by extending the tax to the entire consideration paid. This provision is part of a larger bill that makes modifications to certain property tax provisions.

Rep. Greg Davids

The House Property Tax and Local Government Finance Division had an informational hearing on the bill Wednesday. Its companion, SF3712, sponsored by Sen. Roger Chamberlain (R-Lino Lakes), awaits action by the Senate Taxes Committee.

The goal of the proposal is to clarify that the lodging tax applies to the sales price of lodging as paid by the consumer, including the elements that go into that sales price, regardless of if it was sold by a hotel or an online lodging and travel provider who resells rooms.

“For instance, if you bought a book from a store, and the store argued that the sales price for the purposes of some of the sales tax should be the wholesale price paid by the retailer and not the retail sales price paid by the consumer, it would be really inconsistent with how we treat sales price,” said Paul Cumings, tax policy manager for the Department of Revenue. “You can’t say that the wholesale sales price is the price, and then the cost of restocking and selling the book at the retail store is a service.”

Consumers see one price, Cumings said, and that is the sales price, which is where the department believes the tax should be levied.

Jim Saccoman, general manager of Embassy Suites in Bloomington, said an equally applied lodging tax would return revenue to cities.

“As far as underpaying the tax, it may seem like a small amount for one room, but if you add them all up over the course of one year it can be a six-figure number in the amount of local tax that’s under-collected,” Saccoman said.

Cumings also outlined HF3410, sponsored by Davids, which would make technical and clarifying changes to various property tax provisions, such as updating out-of-date references to abstracts for property tax data reporting and clarifying ownership requirements for certain homestead resort properties. No action was taken by the division.

“These bills make needed changes to ensure our tax code is working properly,” Cumings said. “They improve the clarity and effectiveness of the tax code.”