While the number of legal proceedings against online travel
companies/agents (OTCs/OTAs) continues to increase, there are some
positive trends in recent rulings. The wins in Texas and California
courts are big positives for OTAs, such as
Expedia
(
EXPE
),
Priceline.com
(
PCLN
),
Orbitz Worldwide
(
OWW
) and Travelocity. Particularly Expedia, since the company is being
held liable for the bulk of the back taxes.
The OTA mouthpiece Interactive Travel Services Association
(ITSA) has been talking about "the correct interpretation of law"
by the courts in the above-mentioned states, trying to arouse
sentiments by playing the "unproductive litigation" card that was
"wasting taxpayer resources."
This rhetoric aside, it appears reasonable that the OTAs should
receive compensation for the information and services they provide
and on which they pay taxes. The fact that they neither operate the
hotels, nor fix room rents, nor function as managing agents of the
hotels makes it fairly obvious that imposition of transient
occupancy taxes on them is unjustified.
The real reason that several cities are peeved is the fact that
selling through OTAs lowers the sale value from a retail rate to a
wholesale rate, which in turn lowers the amount of occupancy taxes.
Given the fact that everyone is running on tight budgets, this
seems like a lot of money to leave on the table.
Since existing laws did not provide for this situation, local
governments in some cities, such as South San Francisco and Los
Angeles amended and expanded key definitions, such as "rent" and
"operator." Of course, this is not helping matters any, since it is
effectively changing definitions by state and city. OTAs too, are
doing their bit. They have vague charges referred to as tax
recovery and other fees, which are getting people excited against
them. All these practices, actions and counter-actions are
needlessly complicating matters for both hotel operators and their
online partners.
What is needed is a centralized approach that could seamlessly
apply to all states, but it is unlikely that this will happen any
time soon, or if at all. In the absence of such a solution, all
parties involved are trying to make the most of the
situation.
While OTAs have lost in some cities, they continue to appeal
those cases. However, while in the past, it looked like they were
going to lose the war; it is increasingly looking like they are
winning more battles.
While occupancy tax matters are likely to remain in flux in the
foreseeable future, OTAs continue to see their revenues grow, as
the U.S. ups spending on both business and leisure travel and
international markets, particularly in Asia gather steam.
As a result, the Zacks Rank for the entire segment, including
big players like Expedia, Priceline, Orbitz, as well as smaller
ones like
Ctrip.com International
(
CTRP
),
eLong Inc
(
LONG
) and
MakeMyTrip Ltd
(
MMYT
) is #3, indicating a Hold recommendation in the short term.
CTRIP.COM INTL (
CTRP
): Free Stock Analysis Report
EXPEDIA INC (
EXPE
): Free Stock Analysis Report
ELONG INC-ADR (
LONG
): Free Stock Analysis Report
MAKEMYTRIP LTD (
MMYT
): Free Stock Analysis Report
ORBITZ WORLDWID (
OWW
): Free Stock Analysis Report
PRICELINE.COM (PCLN): Free Stock Analysis
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