The Travel Tax Trap

The Maryland General Assembly managed to mostly restrain itself from passing a tax increase. They did, however, pass one tax hike along generaly partisan lines that is designed to set a trap for Governor Larry Hogan moreso than it is to raise actual revenue.

Senate Bill 190, the “Travel Tax”  was introduced by one of our “favorites”, State Senator Rich Madaleno. When he isn’t busy hurling insults at the the Hogan Family, we know he is a reliable left-wing vote to increase the cost of doing business here in the State of Maryland. This Travel Tax is designed to redefine the nature of how Online Travel Companies (OTC) pay taxes to the state. The OTCs (companies like Orbitz, Priceline, Travelocity, etc) market hotel room inventory from hotels and lodging providers at a reduced rate,making the room availability to the public, at a profit. The OTCs have been paying sales taxes to the state based off of the reduced rate they paid for the room, not at the rate at which the room was resold to the consumer.

The fiscal note also breaks this down as to what it means in practical terms but also, most interestingly, what this would mean fiscally for the state:

The actual effect of the bill cannot be reliably estimated at this time. The bill is intended to clarify current law with regards to the taxable price of hotel room rentals. As such, it would be expected that the amount of sales tax revenues collected would be unchanged. However, because OTCs are not currently paying sales tax using the State’s interpretation of taxable price, the bill would result in a revenue increase.

Americans for Tax Reform has sent a letter to Governor Hogan urging him to veto the bill. In the letter ATR Chairman Grover Norquist correctly notes that “To put it plainly, SB 190 is a continuation of the crony-tax policies of the O’Malley-Brown administration – policies that Maryland voters rejected last November when you defeated Lt. Gov. Brown.” And that’s exactly what it is. Marriott is pushing the Governor to sign this bill at the same time they are threatening a move of their corporate headquarters to Virginia. The Democrats, particularly Montgomery County Democrat Madaleno, are doing the bidding of Marriott and the other, larger hotel chains in an effort to minimally increase tax revenues at the expense of their competition.

Oddly, in the long run this Travel Tax will have almost no impact on the collection of sales tax whether this bill becomes law or not. The OTCs are 0-for-7 in court when States and localities have argued that they were skirting the sales tax. With a court case in Maryland pending making that exact same argument and a likely ruling in favor of the state, we’ll likely see OTCs being charged the full rate on the sales tax regardless of any gubernatorial action on SB190.
Which gets us back to the genesis of SB190 in the first place. Rich Madaleno and the Democrats (and for some bizarre reason, Republican co-sponsor Addie Eckardt) knew that the the OTC case was working its way through the state courts. They also knew that Governor Hogan was elected by a majority of Marylanders on the promise that he would stop the Democratic train of 40-conseuctive tax increases. Madaleno and his supporters set a trap (albeit not a particularly elaborate one) for Governor Hogan. They’re trying to make the argument that  Governor Hogan sign the bill on the basis of “fairness” while being fully prepared to use his signature on SB190 as a proof during the re-election campaign that he violated his promise not to raise taxes on Marylanders and Maryland businesses.
Yes, Democrats in Annapolis do think that voters will forgive them for creating bad public policy solely for the purpose of setting electoral traps for an election more than three years away…..
Ultimately, Senate Bill 190 is a tax increase and Governor Hogan should veto it. And while we won’t know for sure until next week at the earliest, but I’m pretty confident that Governor Hogan will reject this tax increase and send a message back to Democrats that any tax increase is off the table for the next eight years.

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