New York to tax travel, the web

New York has been scrambling for tax revenues, and no stone has been left unturned (including my beloved cigars, which are now costing me more than they did a week ago). Well, the Empire State looks like it’s now going after my second passion: travel. Visitors who book hotel rooms on sites like Expedia or Orbitz could get slapped with a higher total price if a proposed tax on lodging booked online goes through.

For a local, it’s pretty tempting to support this measure. I don’t spend a whole lot of time in hotel rooms here, unsurprisingly, because I already have a roof over my head. And, the notion of making out-of-staters shell out for the services I consume is pretty attractive. After all, it’s a net gain for the state – and for me. But, there are two aspects of this proposed travel tax that disturb me.

The first is the usual: higher prices for one sector of the travel booking business create a skewed competitive landscape, imperiling the abilities of several companies to compete and effectively destroying wealth. It’s hard for me to be in favor of that, as a general rule. Also, the higher prices, due to the proposed taxes, could constrain demand and lead to less tourist revenue coming into the city. Like taxes paid by people from out of state, money spent by these people is also a net gain for the state … and it’s ultimately more productive.

So, taxes = bad, spending = good. I know; this isn’t tough stuff.

The other side of this proposed tax is actually more problematic. It’s a tax on web sales, effectively. The web has generally been safe from inane taxation, and I was hoping (more than a little) that it would stay that way. According to the New York Times:

The measure, included in the budget that lawmakers in Albany completed on Tuesday, reclassifies third-party vendors under the tax umbrella of hotel operators, requiring them to collect the same sales tax.

At the moment, travel sites buy hotel rooms from hotel operators at a price that includes the 4 percent state sales tax. They make the rooms available to consumers at a higher price, but no sales tax is collected on the difference in price. The new provision, which takes effect on Sept. 1, eliminates the loophole.

The folks up in Albany expect this violation of the freedom of the internet to be worth $10 million this fiscal year … which seems like an awfully small return on an investment in the deprivation of dignity and freedom – not to mention putting an unnecessary and anti-competitive constraint on the online travel agency business.

Don’t worry, fellow travelers: we want your money in this state so much that litigation seems likely. Says Colin Tooze, vice president for government affairs of the American Society of Travel Agents: “I expect that one or more affected parties will consider litigating.”

[photo by n8kowald via Flickr]