The township of Lyndhurst in New Jersey, with a population of about 20,000, has all of 3 hotels to speak of. And they seem to want to extract every last bit of tax out of them. For which the township has filed suit against travel websites like Travelocity, Expedia and Priceline. Their argument goes something like this. The hotels have discounted deals with these websites, who take online bookings from customers at higher rates, and pocket the difference. The hotels, for their part, pay Lyndhurst occupancy tax on the lower discounted rate. The township wants to tax the difference.

Attorneys who filed the lawsuit said they hope to make it a class action encompassing all 147 towns in the state that impose a hotel tax. The complaint, filed last week in federal court in Newark, said the amount in question exceeds $5 million, but it was unclear how lawyers arrived at that figure. The state collected $39.8 million in hotel occupancy taxes during the last fiscal year, which ended in June 2007, according to the Division of Taxation. During that same period, Lyndhurst, which has an ordinance assessing a 3 percent room tax, took in $337,117. - Lyndhurst is suing travel websites for its local hotel tax,Greg Saitz, NJ.com, June 25 2008

First, like we said here in this post about Chicago taxing eCommerce auction sites, its a big risk for the economy, and it will tie up online businesses in so much red-tape that it’ll be impossible for anyone new to start an online venture. Kinda like killing commerce on the net, once you start taking a cut from e-profits and throwing regulations at websites. I mean, these companies already pay all the other taxes to both the IRS and the states where they are registered in.

Second, how on earth does a tiny township which collects $337,117 in a year in hotel taxes have the right to ask for $5 million plus in lieu of a tiny part of the main tax? Meaning that the difference (the profit made by the travel websites) is a small part of the actual amount the hotels charge, and the tax liable on that small part is even smaller. It just doesn’t add up.

The one saving grace the township has is that its about half an hour away from Manhattan, which means that they might be getting a few tourists who want to see the things to do in New York, but not stay at the pricey New York hotels. But its not like Lyndhurst is bursting to the seam with visitors and tourists. The main attractions in the township seem to be ‘Music under the stars’ and ‘movies in the park’. Seriously.

Posted on June 25th, 2008 by PLing
Filed under: Hotels