In January 2011, the South Carolina Supreme Court upheld the South Carolina Department of Revenue's position that online travel companies were responsible for the sales tax on accommodations at the retail price charged to consumers. The case, Travelscape LLC v. South Carolina Department of Revenue, 705 SE 2d 28, determined that the OTC practice of paying sales and accommodations taxes on the wholesale price the OTCs paid South Carolina hotel properties was illegal giving them a significant profit advantage over South Carolina lodging providers.
Online travel agencies were only paying taxes on wholesale hotel rates, not what the customer pays. The online company kept the difference as a "service fee." Rather than offset the state and local government's revenue shortfall, this extra money was going into the online travel agency's pocket taking essential dollars needed for infrastructure, local parks, and education away from the state.
Recently the Myrtle Beach Area Hospitality Association has heard from our local community on a similar issue that is negatively affecting our industry and that is the proliferation of vacation rentals by owner. This issue, growing dramatically with the surge of online sites such as VRBO and HomeAway, is creating a similar environment of lost tax and business license revenues presenting an unfair competitive advantage to companies and individuals who are following the letter of the law.
State law requires every person who receives compensation for lodging accommodations to collect and remit all applicable taxes. The law states individuals renting their homes/condos in a commercial setting are supposed to have a business license and remit the state and local accommodation taxes. We recognize that a majority of businesses and local owners are paying their fair share but many others are not. Current enforcement of the law by the state and local municipalities can vary drastically and needed taxes to fund important public services, such as education and law enforcement, are falling through the cracks. Not only are needed tax dollars being lost but it is creating an unfair disadvantage to properties following the law as the same accommodations can be rented for less as taxes are not being remitted.
As one of our 2012 legislative priorities, the Myrtle Beach Area Hospitality Association on behalf of the hospitality industry is calling on all local and state agencies to enforce current laws by collecting all appropriate licenses and taxes from individuals or businesses who rent property commercially for more than 30 nights in a given calendar year.
Tourism works for each of us every day and provides needed revenues to state and local coffers. As the watchdog for the hospitality industry we feel everyone from online travel agencies to individuals should follow the law and pay their fair share.
