Federalism and Hotel “Resort Fees”

The Wall Street Journal is reporting that there is a growing movement in government to regulate hotel fees that are often initially hidden from consumers (click here for the story). Scott McCartney writes states that

[r]esort fees, now more than 10 years old, started with hotels basically mimicking airline baggage fees. But they go a giant step further by making the add-on fee mandatory—and making it hard to find.

On their websites and third-party booking sites, hotels post a room rate for customers to consider, then add an extra charge labeled in a variety of obtuse ways. That could mean a resort fee, destination fee, urban destination fee, amenity fee or facility fee. One boutique hotel in New York calls its fee a NYC Mandatory Facility Hotel Fee, making it look like one more government tax on hotel guests. It isn’t.

In some cases the fees may increase the cost of staying at the hotel by two to three times the advertised price.

The added fees are not just a consumer issue. Local governments may also be missing out on revenue because of the way hotels collect taxes on the fees. Attorney Lauren Wolfe states that

resort fees in New York and other places are a bit of a tax dodge for hotels, too. Instead of collecting the 14.75% hotel tax on the fees, some hotels tax them at the 8.875% regular sales tax rate.

So far Nebraska and the District of Columbia have filed suit against the Hilton and Marriott hotel chains over the fees. However, this may be one case where state and local governments acting as “laboratories of democracy” may not be enough. It could take the federal government to step in and ban the fees nation-wide in order to address the issue. According to Wolfe, federal legislation might

have a chance of passing because the industry can’t find a way out of the resort fee cycle on its own and might look to Congress to force better behavior.