It’s unclear where the ongoing tax dispute between Gov. Brian Schweitzer and the online travel booking industry is heading, but as of last week, one thing seems clear: Neither side is giving an inch.
“There’s no negotiation with me. If you owe your taxes in Montana, you pay them. This is not like Washington DC,” Schweitzer said during a visit to the Beacon office. “You can’t just unilaterally decide you’re not going to pay taxes that are owed in Montana.”
Schweitzer’s comments came on the heels of an exchange of letters with Sam Gilliland, the chairman and CEO of Sabre Holdings, the parent company of online travel website Travelocity, over whether it is paying its fair share of Montana’s lodging, or “bed,” tax.
In his Sept. 22 letter to Schweitzer, Gilliland states explicitly, “If we owe a bed tax to Montana, we will pay it, but it’s our view that we do not owe it.”
The governor says the online travel industry is only paying taxes on the wholesale amount of the transactions sent to the hotel, when it should be paying taxes on the full retail amount charged to the customer. The industry, on the other hand, argues that the lodging tax should only be charged to hotel operators.
“The amount that’s been taxable has always been what the hotel collects at the end of the day and remits to the state,” Andrew Weinstein, a spokesman for the Interactive Travel Service Association, which represents major online booking companies, said. “No room is rented, and no transaction occurs on an online travel site until a person actually books it.”
“We think this is an issue that is as common sense as you can get,” Weinstein added.
The dispute made headlines throughout the state on Sept. 14 when Schweitzer criticized Travelocity leaders at an economic summit in Butte, sponsored by Sen. Max Baucus, shortly before Gilliland announced a $500,000 program promoting Montana. Schweitzer has tasked the state Revenue Department with going after the bed tax funds as part of a broader effort to collect taxes from out-of-state companies that has netted the state approximately $80 million so far.
Though the disagreement is now public and largely focused on Travelocity, Schweitzer was clear that he has not seen tax records, and does not know which online travel companies may not be paying enough of the bed tax, only that, “I know some aren’t.” And he placed the issue in line with the many similar disputes being carried out around the country over whether online booking sites are complying with tax laws.
“I can’t tell you if Travelocity is one of them or not. I just know that this is globally the dispute with online companies,” Schweitzer said. “They’re just scamming the state of Montana.”
Both sides firmly believe the law is on their side.
In his letter to Schweitzer, Gilliland cited nine of 11 court cases where online travel companies won, with the other two split verdicts: “There has never been a ruling on which a court has ruled against our industry on all counts,” he wrote.
Weinstein mentioned these cases as well, calling them evidence of, “a very clear consensus emerging on this issue.”
“We’re winning these cases around the country and we’re winning them at the highest levels,” Weinstein said. “We think we’re right on the facts of the law on this and we’re going to continue to proceed through the courts to prove that.”
Schweitzer, however, is quick to produce his own list of litigation by cities, states and towns against online travel sites. Many of these cases are pending or were settled, but the governor maintains they directly refute statements by those in the travel industry that they haven’t lost a case.
“Probably we, like 40 or 50 other jurisdictions, will prevail. We say the law works like this: You sell the room; you pay the tax,” Schweitzer said. “Apparently these online companies are telling the City of San Antonio, the County of Orange, the City of Phoenix and Scottsdale, ‘We’ll tell you what your law is.’ Well, our Department of Revenue says we kind of know what our law is.”
Montana’s 7-percent bed tax typically brings in about $12 million annually. Weinstein said if online travel companies were to pay what Schweitzer believes they owe, it would net an additional $100,000 – an amount dwarfed by the tourism dollars online travel sites help bring into Montana, and less than the likely cost of a lawsuit should the dispute escalate to court.
“They’re potentially inflicting serious blows on an industry that is vital for economic development,” Weinstein said. “It’s kind of a lose-lose prospect for the municipalities that have gotten involved in it.”
Weinstein points to a similar dispute between online travel sites and Columbus, Georgia that eventually led to Travelocity pulling out of the city entirely. Attempting to book a room in Columbus through Travelocity directs all inquiries to hotels in Phenix City, Alabama, less than three miles across the state line. According to Weinstein, a hotel operator in Columbus conducted a study that found the city lost $19 million since Travelocity stopped booking rooms there.
Schweitzer won’t say how much he thinks Montana stands to gain from online travel sites in unpaid taxes, but it’s obviously higher than the industry. When asked about the $100,000-estimate offered by Weinstein, he scoffed: “Watch while the governor responds. This is called laughing out loud.”
“We have 11 million visitors to Montana every year, almost, and a lot of them stay in hotel rooms,” Schweitzer said. “I don’t know how many San Antonio has, but it might be that much and it might be less, and they collected $20 million from the whole industry.”
Nor is the governor daunted by the prospect of online travel sites pulling out of Montana over the bed tax showdown.
“They advertise every place in the world! Do you think that they have such a special relationship in Bangkok and Hong Kong?” Schweitzer said. “They still sell rooms in San Antonio, and they and the rest of them got clipped in open court for $20 million in a real mean campaign. We haven’t done a damn thing.”
Rhonda Fitzgerald, who owns the Garden Wall Inn in Whitefish and sits on the state’s Tourism Advisory Council, supports Schweitzer’s pursuit of the tax dollars, and also believes the impact on Montana’s tourism industry would be negligible if Travelocity or other online booking sites stopped offering trips here.
“Do you really think someone who wants to come to Montana will only come if they can book on Travelocity?” Fitzgerald said. “Do you think someone will go to Idaho because they can use Travelocity there? Not likely.”
Despite his tough talk, however, Schweitzer came up short of stating directly whether Montana intends to sue any online travel companies for tax revenue, and instead expressed confidence that the issue could be worked out by the Department of Revenue.
“We expect that they’ll be like that other $80 million that we took in last year: Send them a letter, explain the law to us, be an upstanding taxpaying citizen, pay your taxes,” Schweitzer said. “If we’re wrong, come and see us, write a letter, and then like a dog that got kicked in the ribs we’ll just walk away with our tail between our legs.”