Harrisonburg could benefit from tweak to new law about room taxes

An Expedia page shows room availabilities in Harrisonburg. A new law and a proposed tweak to it is aimed at making sure intermediary sites, like Expedia, collect and pay taxes to localities.

By Chase Downey, contributor

The Virginia General Assembly created a new law last year to ensure travel and accommodation intermediary sites — like Expedia, Travelocity and Kayak.com — pay the proper local tax rates on lodgings to cities like Harrisonburg. But the law left something out: a requirement to tell localities how much of the bill goes to local taxes.

So, legislators will be taking up that issue this session. Harrisonburg Commissioner of the Revenue Karen Rose said this clarification will help local governments, which rely on hotel tax revenue as a major source of funding for city programs and projects.

As the law stands, Rose says, accommodation intermediaries don’t have to provide documentation to individuals or the city. When lodging is hosted by individuals rather than a company, intermediaries like Airbnb or VRBO can choose whether to transmit money to the city on the behalf of the lodging host. Then it’s up to the host to prove the taxes have been paid.

“There’s some gaps right now on being able to prove,” Rose said. “It’s very hard to get in touch with VRBO or some of these [other intermediaries] because they’re not here. They’re big, corporate, and they don’t care about an audit trail for Harrisonburg or other localities.”

It also can cause confusion between neighboring localities if those travel intermediaries don’t know which local government should receive the taxes, often called “remitting” in government parlance, Rose said. 

“Who knows if they can be remitting someone from Rockingham County to me… or vice versa. A lot of people out in California don’t know where the lines are drawn,” Rose said. “I think better clarity and definitions in what is required is what the commissioners are interested in.”

Virginia House Bill (HB) 7, filed Jan. 12, looks to clarify the language in the original bill that passed last year and took effect Sept. 1, 2021.

The bipartisan clarification is sponsored by Del. Lee Ware, a Republican who represents parts of Chesterfield, Fluvanna and Goochland counties, and Del. Sally Hudson, a Democrat who represents Charlottesville and part of Albemarle County.

If passed, it will require accommodation intermediaries to provide sufficient information as requested by the locality, including the address of the accommodation, identity of the accommodation’s provider and the total amount on the guest’s bill on which the local tax payment was levied.

How this came about

Accommodation intermediaries make their money by purchasing hotel rooms or other forms of lodging at a discount, then reselling the rooms for a marked-up price.

People who stay in that hotel room or Airbnb lodging pay a tax based on the price of the room, and that tax should be paid by the intermediary to the local government. However, before that new law went into effect in September, there was no legal requirement for these intermediaries to pay the tax on the total cost of the room, which created a loophole. It essentially allowed those travel intermediaries to pay the tax required for the discounted rate of the room that it paid to the hotel and then pocket the difference. 

While accommodation intermediaries technically should not have been counting the difference as profit, Rose said the transient occupancy revenue in October and November of 2021 were higher than in October and November of 2019. (The 2020 revenue doesn’t make for a good comparison because the coronavirus curtailed many people’s travel plans.)

“I can’t say the increase is a direct result of the change in the ordinance,” Rose said.  

She said the city’s Office of the Commissioner of the Revenue had already asked short-term rental owners, such as Airbnb proprietors, to pay the required 7% transient occupancy tax.

Rose also said despite the increase in revenue in October and November compared to 2019, transient occupancy revenue in December 2021 was slightly less than in 2019.

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