The Finch Formerly Known As Gold

8 June 2006

Some strange sense of entitlement

Late last year, various cities and towns in Georgia filed suit against eighteen travel-booking sites, claiming that the sites' booking of discounted hotel rooms en masse was cutting into tax revenues. The defendants filed for dismissal; in May, a judge ordered that the suits could proceed.

The argument, as presented by a Savannah TV station:

Let's say you make your reservation directly with the hotel for a hundred dollars. You'll pay a 6 percent hotel/motel tax of $6. The hotel gets the $100 and pays the city $6. If you book your reservation through a travel website, you'll still pay a hundred dollars and a 6 percent hotel/motel tax. But since the website bought the room at a discounted rate, say $60, it only pays the city 6 percent of that, or $3.60.

My first reaction, of course, is "You can get hotel reservations in Savannah for $100?"

The assumption here is that demand is completely inelastic, that if those rooms hadn't been booked at $60, every last one of them would inevitably have been booked at $100. The idea that someone might pass up a hundred-dollar room entirely and stay in some less-expensive lodging — or some less-expensive location — never quite occurs to them. (When I went to Charleston during World Tour '01, I stayed, not in the high-zoot South Of Broad district, but in decidedly-unhip North Charleston. Didn't affect my ability to see the sights in the slightest.)

Were you to extend this premise logically, eventually retail stores would not be allowed to put items on sale: the lower price inevitably means lower sales tax being remitted.

Allow me to express this in the form of a metalaw:

No one is ever obliged to arrange his affairs to maximize his taxes.

Governments should keep this in mind. Not that they will.

(Suggested by

Posted at 9:09 AM to Dyssynergy

No one is ever obliged to arrange his affairs to maximize his taxes.


Posted by: McGehee at 11:46 AM on 8 June 2006