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Major Cities Sue Online Travel Agents
Brett_Tabke




msg:526095
 2:10 pm on May 13, 2006 (gmt 0)

Major Cities Sue Online Travel Agents [chicagotribune.com] Associated Press

Several cities around the country have sued Web-based travel clearinghouses such as Expedia, Travelocity and Orbitz, claiming they have failed to pay millions of dollars in hotel taxes.

San Antonio filed a class-action lawsuit this week seeking to recover lost taxes, and Los Angeles, San Diego, Philadelphia, Atlanta and Chicago have filed similar suits. The state of Texas and two of its biggest cities, Dallas and Houston, are considering their own actions. San Antonio believes online travel agencies negotiate room discounts from hotels, and sell the rooms at a markup to consumers. The agencies, though, only pay hotel taxes on the wholesale price.


 

natural number




msg:526096
 4:57 pm on May 13, 2006 (gmt 0)

Here we go again ... politicians seeking to suck the blood out of any and every enterprise they can. I can't wait to see the new fountains, and pitiful public works they finance with the money that isn't really theirs.

lgn1




msg:526097
 5:19 pm on May 13, 2006 (gmt 0)

This is an interesting one. Unless Expedia has an office in the state, they are not responsible to pay state taxes, due to not having NEXUS. So why does the cities, think they can collect hotel or accupancy tax, if the state can't even get any money from then.

Regardless, even worse case scenario, expedia is only responsible for taxes on the actual (wholesale) cost, expedia paid the hotel.

Taxing Tourists (bed tax) to visit your city is probably the stupidest marketing move anyways.

Frank_Rizzo




msg:526098
 5:32 pm on May 13, 2006 (gmt 0)

"expedia is only responsible for taxes on the actual (wholesale) cost, expedia paid the hotel"

Surely the problem is that agents charge customers tax at (room + commission) whilst they only pay tax at wholesale price.

e.g.

Agent room rate is $50 but they mark this up as $100 for customers.

Joe Traveller pays agent $100 + 10% tax = $110
Agent pays hotel $50 + 10% tax = $55

Agent is charging the customer $10 tax but only paying $5 to the city.

woop01




msg:526099
 5:42 pm on May 13, 2006 (gmt 0)

Unless Expedia has an office in the state, they are not responsible to pay state taxes

Does it make a difference that the tax is a city tax? Hotel taxes are the popular way to fund welfare programs (publicly funded stadiums) for the struggling billionaire team owners.

I just don't understand how two people in rooms next to each other on the same night would owe a different amount in taxes.

gamiziuk




msg:526100
 6:53 pm on May 13, 2006 (gmt 0)

I agree with "natural number" - the politicians are getting greedy - the only result is that they will kill the goose that lays the golden eggs.

I both work in a hotel, and the majority of my web sites are about travel (I.E. I promote hotel reservations via Hotels.com etc.) - so I have a unique perspective that I understand how the online companies work as I deal with them at both ends.

"Frank Rizzo" you are mistaken in your posting, on how the online companies collect tax. The hotel gives a company an allotment of rooms, with a price attached to them, and the tax requirement of 12.5% (or whatever it is). The online company will collect that amount, and usually $20 on top of that. (No they do not collect EXTRA tax - just the tax requested by the hotel.) If the room rate is more than $100, then the online markup will increase more than $20.

(Yes I am sure - I have watched selected transactions that originated from the hotel I work in)

As an affiliate, the online company will give me $10 or half of thier markup. Gee, guess what? I have to pay INCOME TAX on the commission I just made! The online company will have to pay income tax too!

Ever think about how much money disappears into the tax trough? (Local, State, and Federal) Last time I checked though, the internet world is still supposed to be sales tax-free. The online companies may be able to fight the suit on this basis.

Frank_Rizzo




msg:526101
 7:37 pm on May 13, 2006 (gmt 0)

gamiziuk,

I think I may be right, else what is the case for? It's not for more tax - it's not greedy politicians increasing stealth tax.

Here's a quote from a UK online agent:

"..actual tax cost paid to the vendor may vary from the tax recovery charge, depending upon the rates, taxability, etc. in effect at the time of the actual use of the hotel,"

If I book a room in this country for a stay in the US the online site will charge me a "tax recovery charge" (and a service fee for processing the order and tax recovery charge).

I think that the case action may be for recovering the difference between the tax paid locally and the total tax actually paid by the customer.

Frank_Rizzo




msg:526102
 7:39 pm on May 13, 2006 (gmt 0)

BTW,

When I book US hotels 95% of the time I will book via the hotels booking system on their own website or agree a rate with a contact if I have stayed at the place before.

I only use online hotel booking sites to look at the nice pictures and read the customer reviews. Most of the time they are more expensive than booking direct with the hotel.

gamiziuk




msg:526103
 8:43 pm on May 13, 2006 (gmt 0)


I think I may be right, else what is the case for? It's not for more tax - it's not greedy politicians increasing stealth tax.

No, you are not right. Go back and re-read my first post.

I actually work in a hotel! (Hope you understand that)

I work with internet companies FROM the hotel. I watch the rates they post on their web sites!

Nuttakorn




msg:526104
 8:46 pm on May 13, 2006 (gmt 0)

In the case of International Affiliate User from Expedia, Travelocity, This case they wouldn't pay the taxes right.

farmboy




msg:526105
 3:03 am on May 14, 2006 (gmt 0)

Ever think about how much money disappears into the tax trough? (Local, State, and Federal)

Problem is, many of our fellow citizens don't seem to care.

Let the cost of a gallon of gasoline go up by a few cents or let a bank raise their ATM fees for NON-customers and the masses are ready to march on the capital with pitchforks in hand.

But when taxes are raised, not a pitchfork in sight.

FarmBoy

gamiziuk




msg:526106
 4:30 am on May 14, 2006 (gmt 0)

Thats only because the politicos have gotten slick about it: "We are only raising taxes on the rich!"

(RICH = anyone with income)

Pico_Train




msg:526107
 6:18 am on May 14, 2006 (gmt 0)

Anybody would be due to pay taxes, regardless of where you are from is the argument.

It's some great idea to tax any room at a rate per day.

Tax the tourist.

Airport Departure Tax - 50.00
Clean Air Tax - 10.00
Seat Tax - 5.00
Baggage Tax - 5.00
Hotel Tax - 1.00
Taxi Tax - 2.00
Sidewalk Tax - 1.00
Museum Tax - 1.00

Airfare - 25.00

Total Price - Taxed to death!

Whitey




msg:526108
 7:08 am on May 14, 2006 (gmt 0)

May the tax juridictions have fun.

Application of taxes in multiple jurisdictions can be even more fun.

If you have the definitive answers, maybe you'd let the big 4 accounting firms know, because in most cases they are still scratching their heads, with access to top tax lawyers and accountants.

This specific example may be sorted out, but once it's finished, there's the issue of multi jurisdictional sales taxes and their eligibility and effect on cross border tax treaties. Then income tax. Then defining the business [ ouch that's often very hard ].

And when one jurisdiction extracts a Court Order, what will happen when another extracts a different view and how will the non co operating jurisdictions match. Double taxation could be interesting.

To the best of my knowledge, authorities have backed off embarking on taking the complex matters to Court. I can't comment specifically on why the these US State authorities are confident that they have a case or the need to clarify the situation ... . either way, the longer this goes on , there's the potential for $ BILLIONS to be in eventual dispute - interesting

Moncao




msg:526109
 7:19 am on May 14, 2006 (gmt 0)

I am personally glad they are doing this against wholesalers. For one, my family has a small villas resort which is not wholesaler (thank God) territory. The problem for us and others is two fold;

1) When we and others sell direct, we have to pay tax on the total room / villa charge to the local tax authority of course. Wholesalers by only paying tax on the "contract" rate are effectively enjoying a state tax sponsored discount. What is annoying is the wholesalers often claim their prices include xx% tax (local hotel rate) tax implying on the whole amount, but that is BS.

2) It is not just about tax, it is also about service charge. Wholesalers also tend to say "includes xx% tax and service charge", but their rates often do not include any service charge, and if they do then the same problem exists that the service charge % is on the contract rate. It is also likely that this service charge amount never makes the hotel staff’s pockets as the “twin book” hotel accounting system is endemic worldwide. This is fraud in my book and it is the US$50 a month hotel workers in 3rd world countries who are struggling to put rice on the family table they are screwing.

At the very least wholesalers should put "Net / Nett rate including all mandatory taxes and service charges (if any)". But in my book they should be forced to pay the same tax and service charge percentages as the hotels they sell rooms for.

We worked out that wholesalers have an unnatural and unfair discount of around 15% by doing what they do (not paying tax), and I say "I hope they lose their day in court". I believe tax should be applied and collected for the entire room amount and service charges left out of the equation and for the guest to pay at their own discretion at their hotel. Personally, when I travel, I refuse to accept mandatory service charges as they are not. I only pay service charges (and then I decide the amount) based on what I get.

vincevincevince




msg:526110
 11:16 am on May 14, 2006 (gmt 0)

an unnatural and unfair discount of around 15% by doing what they do

If that is so then opening your own internet arm in another state and directing your direct customers there to purchase rooms that you sell wholesale to your internet arm at $1.00/night could save you a fortune... if the case doesn't go through! You could have your customers make their bookings on an internet connected PC in reception...

SlyOldDog




msg:526111
 5:17 pm on May 14, 2006 (gmt 0)

Even if the wholesalers don't charge local taxes on their margin they still need to apply the local sales tax (VAT) appliable in their jurisdiction unless:

1) They are in a tax fee zone

or

2) They are "exporting" the service in which case VAT may be possible to ignore. But the definition of an export is a bit hairy in this case. It's usually defined like that if the service is consumed somewhere else. There are so many interpretations of this it could go any way in court. I wouldn't like to play that game. In fact I provide a service like this and I pay the VAT because I am too scared not too.

walkman




msg:526112
 6:24 pm on May 14, 2006 (gmt 0)

I would love if the major onlien travel sites stopped selling rooms to the cities that are suing.
Want a room in LA? Sorry, we no longer sell rooms in LA.

Watch them drop this lawsuit in a heartbeat

mister charlie




msg:526113
 6:54 pm on May 14, 2006 (gmt 0)

I believe that Frank Rizzo is correct. The crux of the problem is the discrepancy between the tax collected at the retail rate, and given to the hotel at the wholesale rate.

Whitey




msg:526114
 12:10 am on May 15, 2006 (gmt 0)

I believe that Frank Rizzo is correct. The crux of the problem is the discrepancy between the tax collected at the retail rate, and given to the hotel at the wholesale rate.

Absolutely - but it will be interesting to see what the defence argument is. A class action requires a unified approach [ argument ] and the defense usually requires some consensus in the response argument [ amongst competitors ].

It looks to me like a simple case of "they didn't pay the tax on the commission component".

But it will be interesting to see how the defence defines their business to try and get around it. They must have all acted on some pretty powerful advice from attorney's and accountants. No business likes exposure that can be clawed back.

Moncao




msg:526115
 7:12 am on May 15, 2006 (gmt 0)

"If that is so then opening your own internet arm in another state and directing your direct customers there to purchase rooms that you sell wholesale to your internet arm at $1.00/night could save you a fortune... if the case doesn't go through! You could have your customers make their bookings on an internet connected PC in reception... "

Our villas are not in the USA and we have no hope of playing such games even semi-legally. We are stuffed and de facto cheated by online wholesalers. They should pay taxes on the entire room amount, just like we and anyone else who charges the guest directly has to. Although the wholesalers may not physically be able to do it themselves, as they may well not have any office / facility in the tax payment country, they can certainly pay via the hotels and let them break the law if they want to. As for the service charge, have you ever seen what it is like for most hotel workers in 3rd world countries? When there are too few guests, they get sent home either part time or full time and do not get paid for that time "off"; they go home without money in countries without any welfare system. As many earn US$50 a month when they do work full time and everything around them from gas to rice is spiraling upwards cost wise, they need that service charge element in their pockets as they are legally entitled but which many wholesalers basically cheat them out of - I therefore think affiliates living in relative comfort "here" justifying the actions of wholesalers is risible. Check your wholesaler, what do they say “Tax and service included”? – They are IMHO thieves – they steal from the country’s tax system which pays for roads, schools and hospitals, plus they steal from the people’s own pockets.

And no, for information, we do not personally send staff home when times are bad even though our villas are in one of the worst affected areas for loss of tourism this century

gamiziuk




msg:526116
 3:58 pm on May 15, 2006 (gmt 0)

I am sorry, but this is Webmaster World, and the AFFILIATE FORUM.

We are not a charitable institution here. I am not looking to solve the world's problems. I dont know if anyone else is here, either.

moishe




msg:526117
 4:51 pm on May 15, 2006 (gmt 0)

Does anyone know if Hotels.com and its' affiliates are mentioned in this suite? (IE IAN)

LifeinAsia




msg:526118
 5:15 pm on May 15, 2006 (gmt 0)

So, major Internet travel portal sells hotel rooms in 10,000+ cities. All of a suddent they have to start filing tax returns with 10,000+ different agencies, each with different rates and filing requirements. Sorry, but it just ain't gonna happen. The overhead to do that would raise prices so high that no one could afford hotel rooms.

I like the idea of boycotting the cities launching the lawsuit. Unfortunately, smaller sites that aren't (yet) named in the law suit would just rush in to take up the slack.

vincevincevince




msg:526119
 12:41 am on May 16, 2006 (gmt 0)

All of a suddent they have to start filing tax returns with 10,000+ different agencies, each with different rates and filing requirements

It would be easiest if the tax was paid through the hotel. Instead of paying the hotel X% of the wholesale price, pay X% of the retail price so the proper amount of tax can be paid by the hotel.

I'm not sure the case should be against the travel agents though - seems the case should be against the hotels as it is their hotel room for which there is insufficient tax paid (?)

gamiziuk




msg:526120
 2:50 am on May 16, 2006 (gmt 0)

No, the hotel gave to "internet company" the room at $99 plus tax. Thats what the hotel bills to the internet company and thats what the hotel receives - tax paid to government at the rate the hotel allocated.

"Hotel" is not responsible for any upcharges an "internet company" may charge since this is beyond their control.

Hummm - another interpretation would be to compare an internet company to a "travel agent." Do "10,000+" local governments expect travel agents to pay them extra taxes for travel agent commissions on room bookings?

SlyOldDog




msg:526121
 5:12 am on May 16, 2006 (gmt 0)

I still don't see the point. If a wholesaler marks up the price of anything, he needs to pay taxes on the difference where ever he pays tax. Maybe not at the same rate if different sales taxes apply - bit still they have to pay it.

I can't see any big company not having done that, so the issue has to be something else.

tonyolm




msg:526122
 5:18 am on May 16, 2006 (gmt 0)

What an excellent thread on this topic.

May I add a question based on this topic to see how people from all over feel about this?

I'm in New York State. We have a hotel type tax that is supposed to go to promote more tourism. How do you feel when that collected tax DOESN'T go to promote the hotels but to fill budget gaps caused by no so bright elected officials? Would you still feel fine to collect over the internet as a "hotel" tax even though the hotel isn't benefiting from it?

Moncao




msg:526123
 6:59 am on May 16, 2006 (gmt 0)

"I am sorry, but this is Webmaster World, and the AFFILIATE FORUM.
We are not a charitable institution here. I am not looking to solve the world's problems."

Sorry you don't like facts that do not agree with your affiliate pocket and believe affiliate forums are solely for self-serving affiliate threads.

It is not about charity either buddy, it is about theft. And the issue also is are affiliates accessories to theft / fraud? Perhaps with your outlook, many will hope the matter goes further and you have to pay some of your affiliate cake back.

gamiziuk




msg:526124
 6:56 pm on May 16, 2006 (gmt 0)

Last time I checked, I paid my INCOME TAXES on my earnings as required by law.

If some crooked politicians want to take more money out of my pocket, damn them all.

This 43 message thread spans 2 pages: 43 ( [1] 2 > >
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