New York City raises taxes on travelers and travel resellers
In June, 2008, when New York City was celebrating another record year for tourism into the City, Mayor Michael Bloomberg was quoted in the New York Sun, "We don’t want to have more taxes that would hurt the economic well-being of this city. For example, a tax on tourists is a terrible idea. We desperately need tourists from around the world. … Killing the golden goose is not a smart thing to do."
In the summer of 2009, when New York City tourism was declining for the first time in many years, the Mayor and city council made not one, but two announcements that directly conflicted with the Mayor’s “Killing the golden goose” statement. They asked, and were granted, permission from the State of New York to increase the sales tax one-half percent, effective August 1. Then they amended the City’s Hotel Occupancy Tax to require travel resellers to remit tax directly to the City on their markup, service fees and booking fees.
The upshot of these actions is pretty easy to determine: increased hotel cost paid by consumers, either upfront or at checkout.
The secondary effect, yet undetermined, is how travel agency commissions will be treated. If agency commissions are taxed too, as some believe they will be given the vague wording in the law’s recent amendment, then travel agents will be disinclined to sell New York City as a destination. Given that the City is the top selling destination in the US, and travel agents account for a significant portion of sales, the result could be catastrophic.
Paul Ruden, senior vice president for legal and industry affairs for the American Society of Travel Agents (ASTA) was quoted in the July 27 issue of Travel Weekly:
"If we’re talking about a travel agent who earns a commission on a hotel room and [the commission is] going to get taxed on occupancy, [then] the same commission is being taxed two times, as income and as a hotel occupancy." He added that the same was true for any service fees or mark-ups agents apply to a New York hotel booking to generate income.
"Our view of the occupancy tax ordinances is that they’re written in a way that captures things that were not intended," Ruden said. They are written, he added, by "people who don’t know about the industry who just want more money."
And where would the “more money” come from? Obviously the consumer.
Joel Cohen, Vice President for nyctrip.com, a tour company promoting tourism to the City, does not agree with the logic behind the City’s recent announcements. “Demand is down, so New York City decides, basically, to raise the price for tourists. Is that really wise? It’s Economics 1-0-uh oh. Then to compound the issue the City wants to make it more complicated and more expensive for a tour company, an online travel agency, or indeed anyone selling New York, to generate tourist business.
“What happens when demand for New York City falls even more? Will the City continue to ask for increased contributions from travelers?” Cohen continued. “The long-range impact of their recent actions could mean a significant loss of travel-selling partners who have contributed greatly to the past success of the destination.”
Instead, Cohen suggests, the City should invest more in encouraging tourists to take advantage of the benefits the City offers. “There are travel partners, like nyctrip.com, throughout the US who, with a little bit of help from the City, could provide a huge return. But instead of supporting their promotional partners with marketing dollars, they tax them.”
Business travelers, too, are concerned. In a letter to Mayor Bloomberg the Business Travel Coalition stated in part, “The legal obligations, accounting complexities and audit and compliance requirements alone are overwhelming to contemplate. Add higher taxes to that and you have a recipe for economic disaster for NYC as a business travel and meetings destination. Organizations worldwide will drive business to other cities because of this new tax. NYC hotels will lose existing business during an unparalleled downturn in business travel demand; the city will lose jobs and revenues."
With the amended law scheduled to go into effect on September 1, it is unknown how hotel resellers will react. As of August 1, the City’s finance department has yet to determine the regulations and procedures necessary to assure compliance.