Online Travel Cos See the Light

The past year has been challenging for online travel companies, such as Priceline.com (PCLN), Expedia Inc. (EXPE), Orbitz Worldwide (OWW) and Travelocity.
 
On one hand, the recession impacted consumer purchasing power (both individual and corporate), which indirectly hurt the companies' business. On the other hand, local municipalities in the U.S. have been at their throats, trying to earn additional revenue in the form of occupancy tax.
 
Occupancy tax matters have gone to court a number of times, with some cases decided in favor of the online travel companies and some decided against. Both Priceline and Expedia have been called upon to pay occupancy tax pursuant to adverse rulings.
 
While the situation did look extremely bleak for online travel companies, at present it appears that their voices have been heard.
 
Just recently, courts in Philadelphia and Chicago have decided that occupancy tax claims by municipalities could not be made without due evidence of misdemeanor. The judges are increasingly of the opinion that original occupancy tax collection did not come under the purview of the judicial system. It was felt that only in the event of online travel, the companies failing to pay the occupancy tax adjudged by the tax authorities, could the case go to court.
 
Since none of the online travel companies have failed to make such payments, they should not be penalized.The task before the municipalities is to change the local tax laws in order to make the payment of occupancy tax compulsory for online travel companies.
 
According to the Interactive Travel Services Association (ITSA), there are 7,000 such municipal tax authorities. Therefore, if each one of these bodies created occupancy tax laws to suit themselves, there would be enormous complications for all the players in the industry.
 
The ITSA has therefore, along with other travel organizations, such as the American Society of Travel Agents, the Business Travel Coalition, the Hotel Electronic Distribution Network Association and the Interactive Travel Services Association published an open letter to online travel companies, as well as all other players in the travel industry to solve the occupancy tax problem once and for all.
 
Three major issues were highlighted in the letter. The first was a call upon all the industry players to elevate the issue from the municipal level to the state level, which if successful, would bring statewide uniformity in the tax structure. The second was a call to unite against litigation, which was felt to be nothing more than spurious claims formulated by trial attorneys with the sole intention of earning from them. The third was the call for a joint attempt to alter the conception that a nationwide uniform tax system would set off existing tax revenue of the municipalities, thus eliminating the fear of lost revenue.
 
Although the litigation issue will no doubt remain an overhang on shares of online travel companies, we are a little bit more optimistic at present, given the recent turn of events.
 
We remain neutral on both Priceline.com and Expedia Inc.

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