by Tom Isler | April 01, 2006

San Diego skyline

A serene skyline belies drama in San Diego dust-up with Expedia, et al.

San Diego became the latest major meeting destination to take on web-based travel booking companies when city attorney Michael Aguirre filed a lawsuit on Feb. 9 alleging the companies owe the city more than $30 million in unpaid occupancy taxes.
    “It is the city and not the hotel booking industry that should be receiving these funds that have already been paid by consumers,” Aguirre said in a prepared statement.
    Like those filed by Chicago, Los Angeles and Philadelphia, San Diego’s suit names more than a dozen defendants, including Expedia,, Orbitz, and Travelocity.
    At issue is whether the tax ordinances apply to the full retail price of the hotel room, including the service fees that online companies charge. The suit alleges the companies owe occupancy taxes based on what the consumer is paying for the room, not the discounted “net rate” that the companies pay the hotels. 
    Art Sackler, who serves as the executive director of the Interactive Travel Services Association, an organization that counts among its members many of the defendants in the various cities’ suits, said that service fees are outside the scope of the tax laws. “We don’t collect tax on that because it’s not a charge for the hotel room,” he explained. “Whatever rate that is negotiated for the hotel room, that is the rate for the room,” he added.
    But what the online companies publish as the “room rate” isn’t simply the “net rate” that the companies use to figure occupancy taxes. An Expedia spokesperson confirmed that the “room rate” visible to consumers on its website “includes a margin for Expedia” in addition to the “taxes and service fees” charge, listed separately.
    It’s also unclear exactly how much money the online companies are collecting for taxes, because the sites do not itemize the “taxes and service fees” charge. 
    A court decision against the online companies would likely open a floodgate of derivative suits. As it is, on Feb. 27, Madison, Wis., city attorney Michael May issued an opinion in support of filing a similar suit. 
    Phillip Jones, president and CEO of the Dallas Convention and Visitors Bureau, said the city of Dallas has not yet reached a decision about filing its own suit, but he is following the issue closely because “the potential loss to the city of Dallas is significant,” he said. “Estimates range from $6 million to $10 million.” Furthermore, Jones points out, the loss of tax revenue directly affects his advertising budget at the CVB.