Mayors of U.S. cities have passed a resolution that highlights alleged tax evasion by online travel companies (OTC) and calls on the U.S. Congress not to block legal action to get them to pay up. The resolution claims that OTCs such as Expedia, Priceline, Travelocity, Orbiz and Hotels.com are collecting state and local hotel occupancy taxes from consumers but only remitting a fraction of such taxes to state and local governments. It claims that the alleged evasion is costing a minimum of US$1 billion in lost taxes.

The resolution is one of 114 approved by the annual U.S. Conference of Mayors held in Baltimore between June 17-20. It comes within the broader context of frustration over the state of U.S. cities, the need for billions of dollars to fix the problems and the funding shortages caused by the massive U.S. budgetary deficits.With urban revival and job creation a major mayoral priority, the annual conference passed a number of the resolutions directly related to travel and tourism, an industry which is seen as having the potential to create one million new jobs by 2020 if easier visa processing and stepped up marketing programmes are implemented.

It called for the issuance of a presidential directive to help the U.S. recapture 17 percent of the global long-haul travel market and match Western Europe’s current share in the Brazil, China and India markets by 2015.

Other resolutions backed the Obama Administration’s High Speed Rail Initiative to connect 80 percent of Americans to high-speed rail in 25 years, and sought more federal funding for the arts, humanities and museums.

While seeking more funding from the federal government, the resolutions also fingered the private sector, which is quick to demand better infrastructure and tax concessions, but is also quick to exploit opportunities to evade taxes itself. The OTCs were singled out as a clear example.

Said the mayoral resolution, “Many hotels contract with OTCs in order to increase the occupancy of their hotelrooms, and provide OTCs a discounted rate for each room they book online. The OTCs charge consumers the full retail room rate when booking a room online and collect state and local hotel occupancy taxes based on the full retail room rate, and they typically charge consumers a processing fee.

The OTCs also collect taxes based on the full retail rate that the consumer pays for the room, but they only submit to state and local governments hotel occupancy taxes based on the discounted rate of the room. They pocket the difference.

To illustrate this problem, the resolution details how the alleged evasion works:

“Assume that an OTC contracts with a hotel to offer rooms to consumers at a rate of $200 per day plus appropriate taxes and fees; and assume that the hotel agrees to provide the OTC a 20 percent discount for each room that it books online; this would mean that the OTC will charge consumers $200 for the room and if a local government has a 5 percent hotel occupancy tax, the OTC will collect $10 for a total of $210 per day; and after collecting the money from consumers, the OTC submits $160 ($200 minus the 20% discount) to the hotel, send $8 (5% of the discounted rate $160) to the local government instead of the $10 that’s actually due, and pockets $2, claiming it as a processing fee.”

According to the resolution, “the minimum annual revenue loss that state and local governments are estimated to realise from OTCs will exceed $1 billion and increase to $8.5 billion if hotels, in order to avoid being left in a competitive disadvantage, adopt the OTCs’ business model of booking rooms online and pocketing a portion of local revenues.”

It noted that “many local governments have filed law suits and initiated other collection actions against OTCs to compel them to submit taxes to local governments based on the full retail room rate charged to the consumer. More than 40 lawsuits are pending nationwide along with an unknown number of administrative collection efforts.”

In an apparent move to block the lawsuits, the mayors resolution says the OTCs are seeking federal legislation that would limit state and local governments ability to collect taxes from OTCs by not only exempting OTCs from remitting taxes on the full retail price of the room but may also exempt the payment of any hotel occupancy tax on rooms booked by OTCs.”

It states, “Now, therefore, be it resolved, that the United States Conference of Mayors urges Congress to oppose any legislation that would grant OTCs a tax exemption that terminates existing, or bars future obligations to pay hotel taxes to state and local governments, or otherwise restrict legal actions filed by them.”

The mayors also want the travelling public to bear the additional costs. To boost funding for air transport infrastructure, one resolution called for an increase in the Passenger Facility Charge levied by airports from the present level of $4.50 per passenger enplanement to an unspecified amount.