ASTA Premium Member Testifies Before Massachusetts Special Commission

ASTA Premium Member Jeff Brown, executive vice president of Colpitts World Travel, testified Tuesday before the Commonwealth of Massachusetts’ Special Commission to Study the Corporate Tax Code. Brown was invited to address the Governor’s proposed corporate tax loophole package that would impose a new hotel merchant occupancy tax on services provided by travel intermediaries and the effect the tax would have on the travel agency community.

In his testimony, Brown noted that while the proposed new hotel occupancy tax was originally intended to tax the online mega-agencies, the reality is that as smaller agencies have gained an Internet presence, passage of the bills would severely, if not catastrophically, impact small brick-and-mortar agencies as well as local, independent hotels.

“This new tax proposal undermines the business relationship of hotels and intermediaries,” said Brown. “It will force intermediaries to rethink the cost of doing business in Massachusetts and this action falls hardest on local, independent hotels, which rely on travel agents to promote their properties. The Governor’s Corporate Loophole Tax Package on hotel occupancy tax particularly harms small businesses travel agencies that are the backbone of the U.S. economy.”

Regarding the specifics of the taxes, Brown testified:

Travel agency service fees are not part of the hotel occupancy equation. They are designed to compensate agents for the services they provide to the travel consumer. It would be wrong to tax travel agency services under the guise of a hotel tax.

As proposed, the governor’s corporate loophole package triggers serious concerns for travel agencies starting with the definition of “room resellers.” It is overly vague and includes “any person having any right, permission, license or other authority from or through an operator to reserve or arrange transfer of occupancy…” it is unclear whether a “room reseller” refers to travel agencies as a whole or to individual travel agents.

A second implication of the proposal includes and mandates that “room resellers” apply for and obtain a “certificate of registration.” Based on current Massachusetts law, certificates of registration are issued “in such form as the commissioner prescribes…giving such information as the commissioner requires.” Also, the current law states that “the fee for each registration shall be determined annually by the commissioner of administration.”

There is a potential administrative nightmare associated with applying for a certificate of registration such as:

- Who is required to obtain a certificate- each travel agency or each travel agent?
- What is the initial registration fee and will there be annual increases? and, 
- What will it cost the Massachusetts taxpayers to administer and operate this registration process?

Even more alarming is the proposed provision that mandates room resellers “shall be personally and individually liable” to the Commonwealth for failure to pay fees associated with registration. This is a daunting and undue economic burden that will face all Massachusetts travel agencies and, indeed, any company seeking to promote travel and tourism to the Commonwealth of Massachusetts.

The other downfall with the proposed provision is that increasing taxes on tourism will result in fewer heads in beds. It will deprive Massachusetts of the multiplier effect that tourism brings. Fewer visitors and conventioneers will mean fewer people taking taxis, dining in restaurants, attending ballgames, and visiting tourist attractions and shopping establishments. The net effect may well be a net loss of overall tax and tourism revenue.

According to 2006 year-end figures from the Airlines Reporting Corp., the Massachusetts travel agency community is composed of 491 firms, representing 738 airline-accredited ticketing locations. In 2006, the U.S. Bureau of Labor Statistics reported these Massachusetts firms as employing 2,770 travel agents. Under the U.S. Small Business Administration North American Industry Classification System, 98% of the travel agency industry are small businesses.

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