As legislative budget experts continue to forecast budget deficits for the rest of the year, majority legislators continue to only be laser focused on finding new sources of tax revenue not reductions in state spending—most recently, a new tax that will slam our state’s sagging tourism industry and some of the employers that support it.
Legislators have routinely bandied around the term “Connecticut is open for business” as a way to show a commitment to find ways to create jobs and to focus on turning around state’s economy around. However the so-called “priceline tax” contradicts that message and will only further hinder any efforts to get Connecticut’s economy back on track.
I view this bill as a direct assault on Connecticut Tourism in a time when we can least afford to give people another reason not to come to our state. Let us not forget, the critical role Connecticut’s tourism industry plays in helping to strengthen our economy. Over the past several years our State has experienced a decline in tourism and if demand continues to drop, it no only hurts Connecticut’s lodging industry, but the entire tourism infrastructure (restaurants, shops, theaters, museums, gas stations etc) as well.
Under Connecticut’s current law, the service fees of brick-and-mortar travel agencies and on-line travel companies (OTC), such as think Orbitz, Travelocity and Norwalk-based Priceline are not subject to taxation. The proposed bill would impose a new tax on travel services by subjecting service fees charged by travel agents and other intermediaries for facilitating hotel bookings in Connecticut to the State’s hotel occupancy tax.
Currently a 15% sales and occupancy tax is assessed on the cost of the hotel room bought by the OTC before possible markup on the website. The proposed legislation would impose a 15% sales and occupancy tax on the total value that the customer pays an OTC.
Every community in Connecticut would face a crushing blow to their smaller, independently owned hotels and bed & breakfasts that depend on on-line travel companies to do the lion share of online marketing for them.
The bill received a public hearing in the Finance Revenue and Bonding Committee last week and the proposal was seen by many as bad for Connecticut business. At the public hearing, Priceline President and CEO Chris Soder told the committee the bill would be a “tourism killer” and cost the state money over time.
According to the Internet Travel Services Association (ITSA) that shows for every one percent increase in price, there is a corresponding two per cent drop in demand.
According to the on-line companies their business model helps support hotels by selling rooms they were unable to sell and allows hotels to market themselves to consumers around the world. Hotels remain in control of which rates they want to provide to us; we do not commit to an inventory of hotel rooms.
According to Governor’s administration, the tax would bring in about $6 or $7 million, but stressed that the bill is motivated by “fairness” rather than the need to increase revenue. The Online Travel Companies believe the major hotels chains are supporting this new tact only to raise the OTC’s costs so that consumers will be more likely to go directly to their websites to book rooms instead of using an OTC which would increase their profits.
In the end this sales and occupancy tax expands its scope from traditional hotel rooms to marketing services. If the state really wants fairness, how about lowering the hotel tax that was raised to 15% last year instead of creating another new tax that raises rates again. This tax will have a similar detrimental effect on room night sales making Connecticut less competitive with surrounding New England states that directly compete for our tourism dollars.
Ultimately, we all know it will result in you the consumer paying more.
If you would like to comment on this column or other issues of concern to you please do so by contacting my office at 1-800-842-1423 or visiting my website www.reppiscopo.com. I would love to hear from you.