by Phil Yacuboski
When fall leaf peepers make the drive from suburbs of Philadelphia or New York to see the deep golds and reds on display ever year, many people use online booking companies to get the best deal on hotel rooms.
And because online travel companies are taxed on a wholesale level rather than a retail walk-up hotel room price, they submit less tax revenue than a traditional hotel booking. Many argue the state is getting cheated out of vital revenue it needs in order to promote a competitive tourism landscape.
“The tax paid by the hotel is more than those from the online travel companies because those rooms are more and it’s really not fair,” said Chris Barnett, president and CEO of the Pocono Mountain Vacation Bureau. “It’s a fairness issue. It definitely hurts.”
When you call a hotel to make a reservation, you pay a state sales tax, but if you go through an online booking agent, like Priceline or Expedia, only a portion of that money goes to the state.
Pennsylvania lawmakers are considering several bills to that would close the so-called “loophole” and bring the state an additional $20 million in revenue. The current state tax code allows online travel companies to submit less tax than traditional hotels.
Experts blame the Pennsylvania’s outdated tax code, which was written in the early 1970s. Since online travel companies act as a ‘broker,’ they are allowed to submit less tax.
Since these laws were written before the rise of the internet, Barnett said they need to change.
“One of the bills going through the legislature regulates online travel companies and another deals directly with the tax issue,” he said. “It’s not a new tax, it just is not applied uniformly and it forces those dollars to market Pennsylvania for tourism and the rest to the general fund.”
House Bill 1511 establishes a new Tourism Promotion Fund. Secretary Dan Hassell estimated in May that it would add $20 million in money to the state’s tourism promotion coffers. It’s been voted out of the Finance Committee and is awaiting a vote in the full house. Senate Bill 721, sponsored by Rep. Mario Scavello, (R-40), enacts similar legislation. The Senate bill has to be voted out of the committee.
Barnett said the state is losing money that could be spent on promoting the region. Tourism is the number one economic driver in the Poconos. Tourism Economics, an economic analysis companies, estimates the Poconos’ tourism impact on the whole state at 8.5 percent.”
“We spend about 83 percent of our budget from the state’s Hotel and Occupancy Tax on marketing,” he said, “so that could be digital advertising, billboards or television ads.”
Barnett said in addition to ad buys in northeastern Pennsylvania, they are also buying in places like Philadelphia, New Jersey, Washington, D.C. and Baltimore.
“We’re in competition with a lot of areas,” he said.
“If you’re an online booking agency and you’re collecting tax, that tax should have nothing to do with the booking agency,” said Jean Ruhf, executive director of the Endless Mountains Visitors Bureau. “To the state, they are only remitting tax on $80 when you’ve actually collected on $100. You shouldn’t be allowed to keep the sales tax.”
Ruhf said Pennsylvania has gone from the top four when it comes to tourism funding and is ‘now in the 40s’ when it comes to funding.
“Look to our neighbors in New York State,” she said. “They went from $60 million to promote the state and now they are at $70 million. We get far less and there are earmarks for certain projects.”
“The state is getting short-changed,” said Melissa Bova, vice-president of government affairs, Pennsylvania Restaurant and Lodging Association. “This legislation would allow us to market Pennsylvania better. When you see commercials on television from Michigan, New York and Virginia, Pennsylvania is not doing that. And we’ve proved that if we invest in tourism in Pennsylvania, there would be a three-to-one return on that investment. The state would receive even more revenue on top of that.”
“Fairness is the central reason for this,” said Fritz Smith, vice-president of research and industry relations at Visit Philadelphia. “These companies are not remitting their fair share of tax.”
Smith, who has lobbied lawmakers in Harrisburg, is hopeful the legislation could get the signature of Governor Tom Wolf.
“They seem to understand the issue and are sympathetic,” he said. “It would modernize the tax code and that’s badly needed.”