Charleston, SC — A coalition of South Carolina’s most popular tourist cities, including Charleston, Columbia, and Myrtle Beach, has filed a lawsuit against several major online travel companies. The municipalities contend that these firms have neglected to remit local accommodation taxes and, in some instances, business license fees collected on their platforms from both rental hosts and guests.
At the heart of the litigation is the allegation that these digital platforms failed to forward taxes they collected, thereby depriving the municipalities of critical revenue streams intended for local infrastructure and services. This lawsuit illustrates a broader challenge faced by destinations as they adapt to the digital economy’s disruption of traditional hospitality business models.
The municipalities involved, which also include Folly Beach, Isle of Palms, Hilton Head Island, and others, argue that the funds owed are substantial. These cities are heavily reliant on tourism and thus the impact of any lost revenue is magnified. Mount Pleasant, Beaufort County, Edisto Beach, Port Royal, and Greenville have also joined the legal action, underscoring the widespread nature of the grievances.
Business license fees in Charleston are calculated based on a percentage of a business’s gross income. With the city earning a projected $52 million this year from these licenses alone, it reflects its standing as the second-largest source of municipal revenue after property taxes. This income is vital, supporting the general fund that finances a variety of city operations.
The accommodations tax, which can be up to 3% depending on the municipality, is added to the cost of hotel stays and other short-term rentals within city limits. Charleston sets this tax at 2%, and revenues from it are earmarked for maintaining and improving local tourist attractions. Notably, this tax helped finance a significant $75 million repair project of Charleston’s century-old seawall at the historic battery, a critical preservation effort following six years of work.
The friction over short-term rentals, which have surged in popularity thanks to platforms like Airbnb and VRBO, presents additional regulatory challenges for these cities. Some municipalities, including Charleston and Folly Beach, have started to implement rules or limitations on short-term rentals to mitigate potential negative impacts on local communities.
This legal action against online travel companies signals an escalating effort by municipalities to assert control over and derive benefits from the evolving accommodations sector. It underscores the broader implications of how digital platforms engage with local tax obligations and regulatory frameworks.
The outcome of this lawsuit could set a precedent for how similar cases are handled nationwide, as more cities might look toward legal avenues to claim lost revenues. Moreover, it highlights the pressing need for updated regulatory approaches that effectively balance economic interests with community welfare in the age of digital commerce.
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