Credit Christopher Connelly/WYPR

  It was hotels versus the online travel agencies in Annapolis on Wednesday. At issue: Exactly how much taxes online travel companies should be paying.

When an online travel agent like Priceline or Travelocity books a room, they get it at a discount from the hotel chain. Then they mark it up and rent it to the customer – that’s how they make their money.

Online travel agents like Priceline and Travelicity make their money by negotiating discount rates with hotel chains, and then renting it to customers at a higher rate.

But Senator Richard Madaleno says the state is not getting the full cut that it should be because the online travel agent only pays taxes on the discount rate – not the full freight paid by the customer who actually rents the room. He’s sponsoring a bill to change that.

“The online travel sites have actually been shortchanging governments in the state of Maryland by not paying the taxes they’re supposed to be paying,” Madaleno said, “and pocketing that money that’s the difference.”

Brian Quinn, a lobbyist for Bethesda-based hotel chain Marriott, told the Senate Budget and Tax Ccommittee that the bill would level the playing field, and that paying a higher tax rate for the same room puts hotel operators at a competitive disadvantage.

“We provide the same services that the online travel companies do but we’re not exempt from paying tax on that piece of our charge,” said Quinn.

But Steve Shur from the Travel Technology Association, a trade group, says taxing the difference between the lower negotiated rate travel agents pay for the room and the higher rate they sell it for amounts to a new tax on the fee charged for the service the websites provide to customers. 

“My example is if you get a great deal and use your AAA membership, the taxes are based on the rate that AAA negotiated for you at that hotel,” Shur said. “They’re not based on the AAA rate plus your $35 annual membership dues that you pay to AAA for that service.”

But Jay Ellenby, who runs Safe Harbors Travel Group in Bel Air, says his brick and mortar shop will be impacted. He says half of his company’s profits come from that margin between the rate he negotiates with hotels and the price the customer pays.

“Not only is it a tax increase but it also creates this great hardship on companies such as mine,” he said.

But not everyone sees it that way. States and cities across the country have considered similar legislation – some have made the change, some haven’t – and the National Conference of State Legislatures has thrown its weight behind the idea. Baltimore City and three Maryland counties brought separate lawsuits against online travel agents over taxes and settled out of court. The state comptroller’s office is currently suing Travelocity over the revenue it thinks the website should pay. That lawsuit is pending.

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