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Taxes for online US travelers depend on the state

Taxes for online US travelers depend on the state

Joining with a free membership to the TaxConnections Worldwide Directory of Tax Professionals can prove to be a good idea because there’s a slight bit of a tax issue going on about Online Travel Company – OTC – related taxes. The issue at hand being that depending on where you live in, the travel taxes for online holiday seekers will vary.

For instance let’s assume that you will be renting a room at a hotel using one online travel website or another, for the sum of $100. At this time you, the customer, have paid the hundred dollars for the room while in the background, the OTC – whichever one it may be – has contracted with the hotel to purchase the room for say, $80. Everything is fine till now so in order to keep the numbers simple let’s also suppose that there’s a 10% bed-tax on the room, great, the issue appears when you ask tax questions such as: which sum should the state get its 10% from, the 100 or the 80?

Some consider that the state should get $10, tax on the entire purchase, with the $10 balance being the OTC’s profit. Others think that the state should get $8 and leave the remaining $12 as profit for the OTC. This small discrepancy leads to hundreds of millions of dollars for state and local governments, especially in high tourism states.

An influential task force known as the National Conference of State Legislatures – NCSL – looked at the debate trying to achieve national uniformity but despite their recommendation the state of the law is still unclear. For instance in Atlanta it was determined that the preferred method of taxation was in the states’ favor but other states like Missouri, for instance, have passed OTC-favorable legislation, exempting them from the ‘facilitation fees’ from state and local taxes.

The issue is far from being resolved with many states relied on the courts to interpret the current laws that were written long before there were OTCs.  In case you have questions find a tax professional who is up to date with all the most recent legislative activity in your area.



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