Regulating Interstate Commerce

One of the topics at Orbitz Blogger Day at their headquarters in Chicago was the spate of lawsuits popping up around the country against on-line travel agencies that book hotel rooms.

Lots of cities and towns levy an occupancy tax on hotel rooms, and the issue raised in the lawsuits is whether the on-line travel agencies like Orbitz and Expedia should pay the occupancy tax on the full amount paid by the consumer, or on the lower price paid to the hotel.

The cities and towns say the OTAs are buying hotel rooms at a lower rate and selling them at a higher rate and they should pay tax on the higher rate. The OTAs say they don’t buy and sell hotel rooms. They say they charge a service fee to fill the rooms. They say they’re willing to pay taxes on the service fee — just like brick-and-mortar travel agents.

Because occupancy taxes are levied at the municipal level, the OTAs have been obliged to go to court in more than 40 jurisdictions across the country in an expensive game of “Whack A Mole” that’s costing millions of dollars with no benefit to anyone except lawyers.

However one feels about who should pay what, this is clearly a situation where the federal government should exercise its authority. One of the principal reasons the original thirteen colonies signed the Articles of Confederation and later the US Constitution was to create a federation to regulate interstate commerce.

The founders saw that it made no sense for states, cities and towns to have their own customs offices and postal services, and that’s why they gave the new federal government — expressly, in no uncertain terms — the authority to regulate interstate commerce.

It makes no sense to have the hotel tax issue litigated in one jurisdiction after another. It’s the kind of question that federal courts should settle once and for all. That’s what they’re there for.