Hotel chains want websites to separate fees and taxes on bill

Web shoppers soon may no longer see Holiday Inns or Crowne Plaza Hotels on such sites as Expedia, Orbitz, Travelocity and Hotels.com. InterContinental Hotels Group, or IHG, the nation’s third-largest public hotel company, has said it will remove its properties from the sites unless those sites meet new standards, including clearly labeling fees and taxes.

It’s widely known that many third-party travel sites collect fees on hotel bookings. But their practice of combining “taxes and fees” into one line item on a consumer’s bill obscures what is a fee kept by the site and what are legitimate taxes collected and sent to local authorities.

“A large part of the taxes and fees line [item] can be fees,” said Tom Seddon, a senior vice president for IHG, which represents nearly 350,000 hotel rooms in the United States.

Some third-party sites say it hasn’t been a big consumer concern. “Taxes and fees haven’t been a huge issue for us thus far,” said Josh Feuerstein, vice president of hotels at Travelocity.

“We state very clearly that we include taxes and fees” but those fees are not broken out. “We’re trying to make it as simple as possible,” he said.

Here’s how it works: Let’s say you book a hotel room on a third-party site for $100 a night. When it’s time to complete the reservation, it shows $100 a night plus $15 in “taxes and fees,” but it’s unclear what that $15 represents.

Taxes vary by city, of course, but let’s say that these local taxes are 10%. Of the $15 in “taxes and fees,” it appears that a consumer has paid $10 for taxes and $5 for fees. But it’s more complicated than that.

Most third-party sites pay taxes on a wholesale rate, not on the rate consumers pay for the room. If this third-party site paid $65 for the room for which it is charging you $100, it will send $6.50 to the proper taxing authorities (10% of $65) and pocket the $3.50 difference, making the fees it collects $8.50 ($3.50 plus the $5 in fees), or more than half of the $15.

“They argue that [fees] pay for a service for customers, and that is probably true,” Seddon said. “They just need to disclose it. Customers ought to have a fundamental right to know what they are paying for.”

Some consumers are fighting back. A nationwide class-action suit, filed in Texas on behalf of consumers, says, “Hotels.com receives from consumers moneys in the guise of ‘taxes’ that are never owed or remitted to taxing authorities.” The suit seeks to stop the practice and refund those “taxes” to consumers.

“What they are doing is hiding the fees -- which are really the profit margin -- as taxes,” said Tom Bilek, lead attorney on the case, which is wending its way through the Texas courts.

Deborah Roth, an InterActiveCorp (parent of Hotels.com) spokeswoman, would not comment on the suit.

IHG thinks it has a strong case for change.

“It’s very difficult to justify not” breaking out fees from taxes, Seddon said.

Other big hotel chains are likely to follow IHG’s lead, according to a report issued last month by Anna Barnfather and Mark Abramson, analysts at Bear, Stearns & Co. in New York, who follow the hotel industry. The report says that the standards being adopted by IHG don’t reflect revolutionary ideas but are simply solid business practices.

“If they don’t fix the problem now, then [customers] could really turn on them,” Seddon said. “Now is the time to fix this.”

What do you think about website fees? Express your opinion in an informal survey at www.theinternettraveler.com. James Gilden can be contacted at the above address.