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Cities sue online travel firms for taxes

Marketplace Staff Jul 2, 2009

Cities sue online travel firms for taxes

Marketplace Staff Jul 2, 2009


BOB MOON: Cities across the country are suing online travel companies, claiming the web-based firms are shortchanging them out of tens of millions of dollars in hotel taxes. The stakes are high, especially for cities like San Antonio and Fort Lauderdale that bank heavily on tourist dollars. Danielle Karson reports.

DANIELLE KARSON: Say you book a hotel room for $100 on a Web site like Orbitz or Expedia. You pay the hotel tax on that. But the Web site pays taxes on a discounted price it negotiated with the hotel — say $80. It pockets the difference between the tax you paid and the tax it paid, and considers it a service fee. But some 40 cities don’t see it that way.

Steven Wolens: Governments across the United States have been cheated by online travel companies.

That’s Steven Wolens, a lawyer who represents several cities and counties. He says hotel operators are required to pay taxes on the full, retail price of the room. And while the online agencies aren’t putting mints on the pillows, they’re doing everything else.

Wolens: The online travel company is the only entity completing the entire reservation process. They are charging consumers not only the rate for the room, but the taxes for the room.

But Brian Stagner, a lawyer with Travelocity, says several courts disagree.

Brian Stagner: Online travel companies simply don’t own, operate or control hotel rooms. Five federal courts out there said we’re not hotel operators; that we’re not liable for local occupancy tax.

The online travel firms are building their defense on another front; Stagner says most hotel tax laws were written before the Internet, so localities are, in effect, trying to impose a new tax on web-based companies.

Stagner: These are Flintstone ordinances the cities are trying to apply to a Jetson world.

So Los Angeles Times consumer reporter David Lazarus says the solution is re-write the tax laws.

David Lazarus: There’re gonna have to be some new laws that clearly define that anyone who is selling the room is responsible for the whole nut, as opposed to paying taxes on the wholesale value of the room. And that’s one of the things that’s going to have to be addressed here.

For cash-strapped cities, the lawsuits offer a way to make a nice chunk of change. In February, Anaheim — the home of Disneyland — won the first round in a lawsuit, which ordered online travel sites to pay $21 million in back taxes for the past eight years. The Web sites are challenging that ruling.

I’m Danielle Karson for Marketplace

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