Hilton Head officials: Bill would undermine settlement with travel sites

tbarton@islandpacket.comJanuary 18, 2012 

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A bill before the state House Ways and Means Committee would reverse a S.C. Supreme Court ruling and upend a Town of Hilton Head Island settlement that resolved a dispute with discount travel websites over local taxes paid on hotel rooms.

Sponsored by Rep. Tracy Edge, R-Myrtle Beach, the bill would exempt travel agents and online travel companies from paying taxes on hotel occupancy.

The bill, called the "Travel Agent Tax Fairness Act," is seen by Hilton Head town officials as a way for the travel sites to run an end-around on the courts.

A town committee Tuesday directed staff to draft a letter for the Council's approval to Beaufort County's legislative delegation voicing its opposition to the bill.

"We want to make sure we get whatever our fair share is," said Councilman George Williams Jr., chairman of the Intergovernmental Relations Committee.

The town settled its suit against national online hotel booking sites -- including Hotels.com, Expedia, Orbitz, Travelocity.com and Priceline.com -- in April. The online resellers of hotel rooms agreed to pay $562,500, with the town retaining $348,143 after attorneys' fees and expenses.

Edge's bill would jeapordize future tax collections and undermine the compromise reached with the travel sites, town officials said.

In a series of lawsuits, Hilton Head and other state municipalities, including Myrtle Beach and Horry County, claimed companies were not paying the correct amount of accommodations taxes.

The town charges 3 percent in local accommodations taxes on short-term lodging and gets a share of the state's 2-percent bed tax. The revenue is used on tourism-related expenses, such as beach renourishment, festivals, events and marketing the island.

The online companies have contracts with hotels to accept rates discounted from those offered to the public. The booking sites then add service fees and tax-recovery charges to the room's net rate. The fees are retained by the company as compensation for its role in the transaction.

The lawsuit claims the companies paid taxes only on the lower prices negotiated with hotels, not the marked-up rates charged to customers.

Hilton Head argued, and the S.C. Supreme Court agreed in a separate case, the companies are in the business of furnishing accommodations in the state and thus are responsible for paying taxes on the entire amount they receive from customers.

The discount travel websites contend they are not required to pay taxes on fees because they are derived from services provided, not the room charge. They also argue they should not be required to pay state sales tax because they do not own or operate hotels in the state. The S.C. Supreme Court rejected the claim.

Edge argues travelers rely on the sites to "research, compare and book reservations." These "facilitation services," according to the bill, are distinct from providing a room for lodging and should not be taxed.

Rep. Bill Herbkersman, R-Bluffton, who sits on the Ways and Means Committee, said he supports the bill in part. Herbkersman said hotels should remit taxes based on what they collect on the local level, but is "troubled by the potential for abuse."

"An online agency or 'clearing company' could charge a standard rate and deeply discount the actual room rate. What if the agency is owned by the hotel or by the condo owner?" he wrote in an email. "I would look to work with the town on making sense of the process and perhaps amending the bill in that vein."

Herbkersman said he was unsure how much support the bill has and whether it "is on the radar screen of other members yet."

Attempts Wednesday to reach Edge and other members of the Beaufort County delegation were unsuccessful.

Follow reporter Tom Barton at twitter.com/EyeOnHiltonHead.

Related content

  1. Travel Agent Tax Fairness Act
  2. Travelscape LLC v. S.C. Department of Revenue
  3. Hilton Head reaches settlement with websites over bed taxes: April 26, 2011

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