Hogan’s first veto?

I don’t know our governor’s position on Senate Bill 190, dubbed by some as the “travel tax,” but no less than Grover Norquist of Americans for Tax Reform is urging a veto. His organization has sent a letter (detailed at the previous link) to Governor Hogan asking him to reject this bill that was passed by both chambers during the session. As they explain:

This legislation would disparately impact the Maryland travel industry by apply the Maryland sales tax to online travel agents, brick and mortar travel agents, wedding planners, tour operators, and other service providers. With summer almost here, and tourism season gearing up, a new tax would hurt many small businesses in Maryland who rely on tourism for revenue.

Interestingly, the ATR letter quotes local Delegate Christopher Adams, who cites the hundreds of travel agents who would be affected by the bill. On the other hand, his Senator, Addie Eckardt, was the only GOP sponsor of the bill and lone GOP Senator to vote in its favor.

Perhaps the best explanation of the legalese of the bill comes from its Fiscal Note:

Online travel companies (OTCs) typically obtain access to hotel inventory (rooms) through contractual agreements with hotels. OTCs pay a discounted rate for these hotel rooms that they sell (as room rentals), and then retain certain fees that are part of the total price paid by customers. The purchaser of the room rental is typically charged the same rate as the person would be if the hotel room rental was purchased directly from the hotel. The issue that has arisen in recent years is the definition of taxable price that state and local sales and use taxes and hotel rental taxes are to be based on. OTCs have typically been paying and remitting these taxes based on the reduced rate that they pay for the hotel rooms; however, states and local jurisdictions have been arguing in court that these taxes should be collected on the total room rate paid, which is the base for which the taxes would have been imposed if a customer rented the hotel room directly from the hotel.

As I understand it and to create an example, let’s say a hotel room rents at $150 per night to the general public. An OTC comes to the hotel and says they will rent the remaining lot of rooms for $75 apiece – obviously the hotel profits by not having to deal with unsold inventory for the night while the OTC can provide a discount to the standard rack rate and still make money. Everybody wins – but the state.

The contention is that OTCs are paying room taxes based on the $75 rate, while the state believes they should be paying based on the $150 rate. That’s what this law would provide for, and while some jurisdictions in the state have come to agreements with the OTCs (and there is a court case on the subject pending) this law would force OTCs to pay taxes based on the higher rate, eating into their bottom line for dubious overall benefit. The Travelocity vs. Comptroller case cited by the Fiscal Note involves $6 million over eight years; even if Travelocity is accounting for just 10 percent of the overall market the amount in question is only a few million dollars out of a $40 billion budget.

If Hogan vetoes the bill, the margin in the House is close enough to make it very possible a veto would be sustained as it passed in the House of Delegates by an 84-56 margin – one vote short of 3/5. Delegate James Proctor could be the swing vote since he was absent from the original balloting.

Because Maryland law allows the governor to sign bills well after the legislative session has concluded, it’s quite likely that Hogan can wait as long as he needs to make the decision. While this bill is dubbed the “travel tax,” there is the complication of Marriott possibly moving from Maryland that Hogan may have to consider.

But the idea of electing Hogan was that of no new taxes, regardless of whether this is a “clarification” or not. Let the court case take its course, and veto the bill. It’s another vote that is likely to find its way to the monoblogue Accountability Project.


2 Responses to “Hogan’s first veto?”

  1. Hogan’s first veto? | Maryland Online on April 14th, 2015 12:38 am

    […] Maryland News […]

  2. Scott Shaffer on April 14th, 2015 11:31 am

    That’s only part of the issue. The part you missed is that the consumer is paying the tax based on the full $150 amount, just as they would if they purchased directly from the hotel. The OTC is only submitting to Maryland the tax for a $75 room rate. So the OTC is not just making money from the difference in the room rate, but also the difference between what the consumer is paying for “taxes” and what the OTC submits to the state.

    I don’t support this particular bill, but I also don’t like the fact that consumers are being given a line item on their bill that says “hotel tax,” when in reality a portion of that line item is being kept by the OTC as revenue. It’s a matter of transparency vs. gaming the system. If I’m paying a tax on something, I expect that money to pass through to the state. I think the better solution would be to have the consumer only pay the tax on the $75 rate.

    I wonder if this same thing happens with airline taxes? Are OTC’s pocketing those as well?

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