Atlanta and other cities claim these Web site travel agencies bilk the city out of tens of millions of dollars yearly in hotel occupancy taxes.
There are now several suits working there way through the
Atlanta filed suit on March 28, 2006 in Fulton County Superior court.
Hotel occupancy tax is a major source of revenue for all cities. At stake is the difference in tax collected on the wholesale amount the online agency pays instead of the retail amount the traveler pays. A new business idea called "merchant model pricing” creates the tax revenue decrease.
Under this business model, large online travel agencies contract for hotel rooms at deep discounts. For instance, they may contract for a $250 a night room at $80 and then offer the room for sale on their Web site for $150. The traveler pays $150 to the on-line agency. The online agency pays the hotel $80, plus the city's occupancy tax (usually 10% to 14%). The online agency pockets the difference leaving the city with about half of their expected tax revneue.
Using an occupancy tax rate of 10%, the city receives $8. If the traveler reserved the room through other distribution channels and even paid a lower amount, say $125, the city would receive $12.50 and the traveler would keep her or his money until checking-out of the hotel.