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Gaming Guru

Chris Jones
 

Hotel Reservations Services Accused of Not Paying Taxes

16 October 2003

LAS VEGAS -- A normally routine budget item at Tuesday's convention authority board meeting became a call to arms against major online hotel reservation services some allege aren't paying their share of local room taxes.

Board member Bob Forbuss used an agenda item related to room taxes as a platform to launch an attack against Barry Diller, whose New York-based IAC/InterActiveCorp operates popular Internet travel sites such as Expedia.com, Hotels.com and will soon add rival Hotwire.com.

Forbuss alleges Diller's businesses, and many similar third-party Web sites, routinely buy rooms from Las Vegas-area hotels at discount rates before reselling them to consumers at marked up prices without paying required room taxes on the mark-up.

"It's a serious problem," Forbuss said. "My fear is we're leaving a lot of money on the table."

For example, Forbuss said Expedia could purchase a room from a local hotel operator for $50 per night before selling the same room to a consumer for $100. Though state law typically requires a 9 percent fee on such a transaction, Forbuss said companies such as Diller's routinely pay only $4.50, or 9 percent of this example's original $50 transaction value.

Forbuss contends they should pay $9 in such a scenario, or 9 percent of the final $100 sales price.

States such as Florida, Texas and New York have already taken action to prevent revenue losses stemming from online reservation services, Forbuss said. He urged the convention authority to study a similar course, with assistance from the state Legislature and Nevada's congressional delegation if warranted.

"This is very similar to the robber-barons" of the 1800s, said Forbuss, who estimates as much as $35 million to $40 million may have already been lost locally. "Diller isn't going to pay us anything unless we go after him."

Park Place Entertainment executive Tony Santo and several other board members, supported Forbuss' claims.

"This city is only as good as its properties perform," said Santo, who believes both local jobs and resort expansions could be lost if excess room tax revenue continues to escape the area.

Park Place and Mandalay Resort Group cooperate on the Web site lasvegas.com, which counters third-party vendors such as Expedia, he said. R-J DISCLAIMER HERE?

Board Chairman Jim Gibson said the issue could be subject to still-gray areas regarding the legality of Internet-based interstate trade. Still, he agreed legal counsel Luke Puschnig should investigate the convention authority's options.

An IAC/InterActiveCorp spokeswoman on Tuesday declined comment on the issue.

Approximately 14 percent of Southern Nevada's approximately 128,400 hotel and motel rooms are booked online, said convention authority Executive Vice President Rossi Ralenkotter.

Clark County is also working to develop an ordinance that will keep more room tax revenue in Southern Nevada, said Patricia Kujawa, senior manager of finance and audit for Clark County's Department of Business Licensing.

Clark County and the cities of Las Vegas, Henderson, North Las Vegas, Mesquite and Boulder City each collect taxes on hotel and motel rooms rented within their jurisdictions. Portions of those taxes benefit the convention authority, which in turn typically contributes about 10 percent of its collected tax revenue back to those municipalities to help defray costs associated with collecting the tax.

The board was about to return nearly $3.5 million to those municipalities stemming from taxes collected from July through September when Forbuss raised the issue that some online companies weren't paying their fair share of room taxes. That vote was approved later in Tuesday's meeting.