The city claims
its hotel tax coffers
have been coming
up short.
Los Angeles filed a class-action lawsuit in
January against some of the biggest names in online hotel booking,
alleging that the sites pocketed hotel tax money that belonged to
the city.
According to the suit, companies including Expedia, Hotels.com,
Orbitz and Travelocity have been paying city hotels a transitory
occupancy tax based on the wholesale rates at which they secure
rooms, but then charging customers a tax based on the inflated
retail price at which the rooms are resold. The difference, charges
the suit, ends up in company coffers.
The defendant companies, represented by the Bethesda, Md.-based
Interactive Travel Services Association, claim they owe the city no
tax at the point of resale, however, since they are not hotel
operators themselves. “The city is trying to impose a new tax on
Internet services,” challenged an official statement issued by
ITSA. “Under California law, any new tax must be approved by voter
referendum. This one was not.”
Steven D. Woolens, Esq., a city attorney involved with the
suit, estimated a total loss of more than $10 million in tax
revenue in Los Angeles alone and called the defendants’ statement
inconsistent with all precedents in tax law.
“Under public policy, legislatures and city councils assign the
duty of collecting and remitting taxes to private enterprises,”
Woolens said. “That’s what the sales tax is. These are the only
people I’ve seen who collect the entire tax, remit some, and keep
the rest in their pockets.”
Others consider the case far from clear-cut, however. A
prominent attorney in the hospitality industry pointed to various
arcane circumstances particular to the case. “For example, if
Orbitz rents a room and then fails to occupy it,” the lawyer posed,
on condition of anonymity, “is Orbitz then responsible for paying a
tax on occupation? The questions of this case are complex.”
While no other city has filed a similar suit against the online
companies, many have been monitoring its course.
“We’re working to educate hoteliers and our bureau peers on the
importance of this issue,” said Gregory Pierce, CFO and vice
president of
the Atlanta Convention & Visitors Bureau. “It will be
interesting to see what happens.”