Posted on 05/16/2006 6:33:16 PM PDT by Extremely Extreme Extremist
(CBS) DALLAS Several cities around the country have sued Web-based travel clearinghouses such as Expedia, Travelocity and Orbitz, claiming they have failed to pay millions of dollars in hotel taxes.
San Antonio filed a class-action lawsuit this week seeking to recover lost taxes, and Los Angeles, San Diego, Philadelphia, Atlanta and Chicago have filed similar suits. The state of Texas and two of its biggest cities, Dallas and Houston, are considering their own actions.
San Antonio believes online travel agencies negotiate room discounts from hotels, and sell the rooms at a markup to consumers. The agencies, though, only pay hotel taxes on the wholesale price.
According to the lawsuits, this is generally how it works. Hypothetically, a travel website buys a room for $50 and sells it to you for $100, which includes their taxes and fees. The city charges a hotel occupancy tax -let's say it's 10 percent. The travel website collects the tax on the $100 - which is $10 -- but pays tax on the $50 it paid to buy the room. That’s $5. The site keeps the rest.
"This scheme is being perpetrated by the Web-based hotel travel companies on every city and state in the country as far as we can tell," said Steve Wolens, a lawyer representing the city of San Antonio. "And they have been shameless about it."
Wolens estimates San Antonio loses as much as $2 million annually in missed tax revenue.
The San Antonio suit seeks taxes owed over several years and names 16 online agencies. Expedia Inc., also the parent company of Hotels.com; Travelocity, a unit of Sabre Holdings Corp.; and Priceline.com Inc. referred comments to industry spokesman Art Sackler. A spokesman for Orbitz, a unit of Cendant Corp., did not return calls.
Sackler, who is executive director of the Interactive Travel Services Association, said the governments misunderstand the role and responsibility of the companies and the laws governing the transactions.
The companies do not buy and resell rooms, he said. Rather, they negotiate a lower price based on the value of the service they then provide — creating a marketplace for consumers to find hotel rooms, he said. The markup is a service fee, he said.
So hotels are paying the appropriate taxes, and none should be collected from Internet companies, Sackler said.
Dallas and Houston officials say they could potentially join with San Antonio in the suit filed in federal district court in San Antonio. Or, they may file separate suits.
Texas, which charges a 6 percent bed tax, is auditing an online travel company, state deputy comptroller Billy Hamilton said. State policy requires him to keep the company's name confidential because of ongoing investigation, he said.
The same day San Antonio filed its lawsuit, a federal judge ruled that a Georgia class-action suit demanding "tens of millions" of dollars in unpaid hotel taxes could proceed.
If the courts compel the companies to pay the taxes in the future or pay past taxes, the agencies probably will pass the difference on to the consumer, said Michael Cannizaro, an analyst with travel-research firm PhoCusWright.
The cases could hinge on the companies' contracts with different hotels, he added.
Texas will seek those contracts in its audit, Hamilton said. If the state finds taxes unpaid, it will audit all the online travel companies and demand back taxes, he said.
The city of Houston promised to sue in April, but withdrew and entered talks with the online companies, said Frank Michel, spokesman for Mayor Bill White. Michel said a lawsuit remains a possibility and the city plans to decide on a course of action soon.
The Dallas city council will determine its next step after meetings with the city attorney later this month.
Dallas City Councilwoman Angela Hunt said unpaid hotel tax means that taxpayers shoulder more of the burden of running the city and its tourism efforts.
The Dallas Convention and Visitors Bureau, which receives a portion of bed tax revenue, estimates the city loses about $2 million a year.
The online travel companies may be concerned. Documents filed with the Securities and Exchange Commission show they're putting money aside in case they lose.
Any hotel tax in excess of the local sales tax rate ought to be unconstitutional. (1) As a burden on interstate commerce. (2) As taxation without representation.
If they do this, the online companies will just shrug and pass the costs onto travelers, and they'll go elsewhere.
Then cities will be scratching their heads and wonder why they're not getting any business.
A tax on people who do not live in your city, do not vote in your city and usually don't even know they are being taxed to support some local pork project is not exactly a political profile in courage.
I think that if you collect a tax, or rather, claim to collect a tax, that tax should be paid as collected. If the travel sites are pulling this, then they should cough up the money they've collected. And if they somehow beat these lawsuits, the credit card companies should go after them to recover the money they bilked from their card holders.
Um, can anyone explain to me why I'm wrong in seeing a strong parallel between high hotel room taxes by the city govt and "protection" fees done by the Mob?
One is an extortion racket to enrich the leaders and their cronies. The other is called the Mafia.
The mob is more efficient, has less overhead and can remove employees without long civil service hearings.
And the mob is more honest.
The penultimate taxation scheme.
Taxing somebody who has absolutely no vote on the matter is a logical extension of all taxation -- where the first step in increasing any tax is to identify a suitably small group to pounce on.
Expedia sucks. Now, it is easier and I believe safer to book directly through the airlines. If you have to change your itinerary, Expedia will kill you on fees.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.