County may not join hotel lawsuit

April 5, 2009
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At least four Michigan counties have filed a lawsuit in Ingham County Circuit Court against 17 online hotel booking companies, and Kent County Treasurer Kenneth Parrish is looking into whether he should join the legal action.

Ingham, Calhoun, Saginaw and Genesee counties have filed the complaint against such online travel sites as Expedia, Travelocity, Priceline.com and Hotels.com for selling hotel rooms over the Internet at rates higher than the price actually taxed. The lawsuit doesn’t contain a damage amount.

“In these challenging economic times, when we are asking everyone to make sacrifices, it is critical that we pursue revenues due and owing to the county as vigilantly as possible,” said Ingham County Treasurer Eric Schertzing in a statement.

The counties claim an online booker might pay, say, $30 for a room that it sells to a traveler for $100, and then pay an accommodation tax based on the price it paid for the room rather than the amount it received from selling it.

Kent County has a lodging-excise tax that adds 5 percent to a guest’s tab. The tax on a room priced at $100 would be $5 as opposed to $1.50 for a room priced at $30, meaning a levy based on the actual room price should be 2.3 times higher. The Convention and Visitors Bureau also charges a 1 percent tax on room rates.

“It’s something we would certainly look at. It’s also being addressed on a national level through the National Association of Counties. They’re working on national legislation to solve the problem,” said Parrish.

Parrish told the Business Journal he needs to take a closer look at the situation before he can consider joining the suit. By that he means that he needs to learn what the impact on taxes has been here, if any. To do that, he first needs to find out how many rooms were reserved through the online booking companies, which don’t file reports with his office. The hotels do.

“I suspect it’s a greater concern for what I would call ‘destination cities.’ I’m not sure how many people are booking hotels in Grand Rapids on Expedia or Travelocity. I’m sure there are some, but the bulk of it is through conventions and that sort of thing, which wouldn’t go through those types of services,” said Parrish.

Parrish said when the county audits the lodging-excise tax receipts, it does have some information relating to how the rooms were booked. But he said getting to the bottom of who booked what, how many, and at what price would take a lot of digging since the hotels may not know what the online firms end up charging a guest, because they buy rooms in bulk at a discount.

“There is an issue of trying to figure out exactly what the difference would be,” he said.

With delinquent taxes and foreclosures on the department’s front burner, Parrish said researching online hotel bookings isn’t a priority right now.

Revenue to the county from the hotel-motel tax fell last year by 1.2 percent from 2007 to $4.99 million. CVB President Doug Small said the per-room revenue at county hotels and motels was also down last year due to discounted rates.

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