Romulo L. Diaz Jr.
In July, just months after the City of Los
Angeles filed a lawsuit against 17 online travel-services companies
including Expedia, Hotels.com, Orbitz and Travelocity for missing
hotel-tax revenue, Philadelphia filed a similar complaint. What
bodes even worse for the travel companies: This might be just the
beginning.
Both cities claim the online travel companies remit occupancy
taxes based on the wholesale rate of the room but charge consumers
a significantly higher price; city officials feel their
municipalities should be receiving revenue based on the higher
rate.
Michael Fantini, a partner at the Philadelphia law firm of
Berger & Montague and one of two lawyers representing the city,
said according to the city’s code, occupancy tax is charged on all
“consideration” a person receives for renting a hotel room,
including any service fees charged.
Arguing the other side, Art Sackler, executive director of the
Bethesda, Md.-based Interactive Travel Services Association and
spokesperson for the online companies, claimed the services do not
actually sell rooms; they simply act as a marketplace and charge a
fee for that service, which should not be taxed.
“They are providing a [shopping opportunity] with an awful lot
of choice, functionality, convenience and price,” said Sackler.
“The travel companies do not buy, rent, hold, control, sell or
resell hotel rooms in any way.”
Romulo L. Diaz Jr., Philadelphia’s city solicitor, also is
concerned with opening the public’s eyes to the online companies’
practice of tacking on a fee without informing customers.
“I think most consumers would like to know what the hotel room
cost is and how much of a fee goes to the online travel agent,”
said Diaz. “If they made that information available to the public,
we would not have a problem.”
According to Diaz, the lawsuits in Los Angeles and Philadelphia
are just the tip of the iceberg. As soon as Philadelphia’s lawsuit
hit the press, he began fielding calls from many municipalities
considering similar actions.
The online companies have been aware of a storm brewing for
some time. In financial reports filed with the Securities and
Exchange Commission last year, some noted they had set aside funds
to pay these taxes, in case the suits were decided against them.
For instance, Hotels.com’s filing stated profits had declined in
part as a result of “a provision for potential occupancy tax
liability this year.”