Business Government

Closure ‘Loophole’ Touted As Path To Bringing In $20 Million To Promote Pennsylvania Tourism


Visitors in Philadelphia’s Radisson Blu Warwick Hotel.
Credit: M. Fischetti/Visit Philly

Pennsylvania imposes a 6 percent hotel occupancy tax when you rent a room. So if you were to rent a $100 room online, you’d see an extra $6 added to your bill, plus other taxes and fees depending on the locale.

If you rented through the hotel’s website, that $6 will go to the state of Pennsylvania, according to a hotel industry representative. But if you rented the exact same room at the exact same price from a site like Expedia or Priceline, the representative says, only a portion of that $6 goes to the state, and the website keeps the remainder.

To address this, state Rep. Marguerite Quinn, R-Doylestown, has introduced a bill that will close what she calls a loophole in the tax code. Quinn says that because the current hotel tax is based off tax code from 1971, it doesn’t take into account the ways that online travel companies have transformed hotel booking, and she says the law needs an update to make sure the state is getting the same revenue it has always expected.

“We’re just looking to modernize the Pennsylvania tax code to reflect the travel purchase environment of today,” she told a recent joint meeting of the House Finance and Tourism committees.

Quinn’s House Bill 1511 would establish a new Tourism Promotion Fund to collect that revenue and use it to market the state’s tourism destinations. Department of Revenue Secretary Dan Hassell said that a fiscal analysis says the state will pull in $20 million annually for the fund if the bill is passed.

Quinn told the assembled committee members that a number of other states have already passed laws to collect the money not currently captured, including New York.

State tourism officials said that Pennsylvania is losing market share in tourism circles because other states are marketing their attractions much more aggressively, and that the Tourism Promotion Fund would be a significant step in closing that gap.

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“The Pennsylvania tourism office … has been severely underfunded during the last eight years,” Fritz Smith of Visit Philadelphia said. “[The funds] would help to recover the market share, economic impact and jobs lost while other destinations such as New York state, Virginia, Florida, California, Michigan – all those states whose ads we see on television every morning – have capitalized on our absence from the marketplace by boosting their promotional efforts.”

Smith said that Pennsylvania currently spends about $4 million on its state tourism department, which is in the bottom five in the country.

Joseph Montano, government affairs manager for Expedia, insisted that his company should not be subject to the hotel occupancy tax because they never have any real access to or control of the hotel rooms – they merely help to connect the hotel and the guest and collect a fee for facilitating that transaction.

“The fallacy … that we resell or rent hotel rooms is 100 percent false,” he said. “We have no access to that inventory whatsoever. The hotels control the room 100 percent of the time, we don’t buy blocks of rooms, we never own or carry any of the inventory risks that goes with it.”

Rep. Michael Corr, R-Collegeville, wanted to know why Expedia and similar companies were giving consumers the impression that they were being taxed on the full amount of the room, when in fact the tax was only being applied to amount the hotel receives after the online travel company subtracts its fees.

“The way it works is that the negotiated rate, all the taxes on the room, are passed on to the hotel,” said Stephen Shur, president of the Travel Technology Association. “And the difference, the service fee, is actually a little bit of a dynamic number.”

“I think what you are telling me is that in practice, you are showing the consumer the application of the tax on the gross number,” Corr replied. “And then in reality, behind the scenes, you are allocating a portion of what the consumer sees as a tax toward your fee.”

Shur insisted that there was no deception because all the customer sees is a single “taxes and fees” number, and the specific split between the two is never revealed, but Corr and other committee members remained unconvinced.

Matt English, manager of the Holiday Inn Harrisburg-Hershey and testifying on behalf of the Pennsylvania Restaurant and Lodging Association, explained to the committees that otherwise identical transactions on two different sites for the same price on the same room could result in different tax collections for the state.

“I urge you to go online and begin to book directly with the hotel through the website, then go to an online travel agency and book the same hotel rate,” he said. “You’ll see exactly the same price, yet the hotel is remitting tax on the full retail amount, and the online travel company is not.”

While no formal vote on the bill was taken at the hearing, both Republican and Democratic members of the two committees expressed skepticism of Montano’s and Shur’s positions in defense of the online travel agencies and appeared to accept the tourism officials’ assertions that other states had not seen any negative effects from implementing similar legislation.


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Pennsylvania Watchdog

Pennsylvania Watchdog