The State of Florida and six Florida counties sued Expedia and Orbitz Nov. 3 over the hotel tax issue, ratcheting up the cross-country flurry of litigation.
The usual M.O. is for cities and counties to sue on this issue, but Florida Attorney General Bill McCollum says Florida, with its large hotel business and tourism destinations like Orlando and Miami, is the first state to do so. He says the state suit will help sort out the applicability of state tax laws to Internet travel firms.
The Florida suits closely follow a defeat for the OTAs in a class-action case in San Antonio, Texas.
On Nov. 2, Expedia Inc. issued the following statement about the San Antonio verdict:
"The jury’s verdict found that the Expedia Subsidiaries and other on-line travel companies that are defendants in the lawsuit “control hotels” under the local hotel occupancy tax ordinances and are, therefore, responsible for collecting and remitting local hotels occupancy taxes. The jury rejected the City of San Antonio’s claim for conversion — essentially, that the Expedia Subsidiaries and the other on-line travel companies had collected a tax and wrongfully retained the tax dollars — and rejected the claim for punitive damages.
“Expedia is disappointed in the San Antonio jury’s verdict finding that the Expedia Subsidiaries and other online travel companies “control hotels” and are, therefore, responsible for collecting hotel occupancy taxes. We strongly disagree with the jury’s verdict that online travel companies “control hotels” in Texas and we believe the verdict is unsupported by the facts of the case and the law. We believe the verdict is contrary to the plain language of the ordinances at issue and the clear evidence from hotels that testified that online travel companies do not, in any way, control hotels.
“The final amount of the judgment against the Expedia Subsidiaries has not been determined. The jury found that the Expedia Subsidiaries owed approximately $15 million for historical damages through May of 2009. In further proceedings, the Court will determine, among other things, whether the tax is actually due on the amounts that the online companies retained for their services and the amount, if any, of penalties and interest, which could be significant. We are therefore unable at this time to estimate the final amount of the judgment. We believe that the jury’s decision is inconsistent with the ordinances and the evidence presented at trial and we intend to vigorously pursue our rights on appeal to the United States Court of Appeals for the Fifth Circuit.”
Meanwhile, the Hudson Crossing Blog has an interesting take on the Florida suit (in pdf), pointing out how the plaintiff has a tortured and erroneous understanding of how the OTAs' hotel merchant model works.
However, if Florida does its homework (and it has been pondering the issue since early 2008), it has plenty of time to amend the complaint and sort out its misplaced assumptions. Shoddy work by Florida, however, in failing to understand that most OTAs don't take inventory risk when using the merchant model for hotels.
In thinking about the hotel tax issue, one point that many people may be missing about the depths of the problem for the OTAs is that they are being hounded with scores of tax audits and assessments in addition to the lawsuits.
For example, let's say that perhaps 60 or so hotel-tax lawsuits have been filed across the country against the OTAs in the last four years. More than a dozen of these suits have been dismissed -- not on the merits of the issue -- but because the cities or counties were told that they would first have to conduct audits or administrative actions before taking the matter to court.
If these jurisdictions are unsuccessful in the administrative process, they can still take the action to court in an attempt to collect.
So, here is how Priceline framed the issue in August in Note 13 of this Securities and Exchange Commission document:
"The Company and certain third-party defendants are currently involved in approximately forty lawsuits brought by or against states, cities and counties over issues involving the payment of hotel occupancy and other taxes (i.e., state and local sales tax) and the Company’s “merchant” hotel business. The Company is also involved in two consumer lawsuits relating to, among other things, the payment of hotel occupancy taxes and service fees. In addition, more than forty-three municipalities, and at least two states, have initiated audit proceedings (including proceedings initiated by thirty-seven municipalities in California), issued proposed tax assessments or started inquiries relating to the payment of hotel occupancy and other taxes (i.e., state and local sales tax). Additional state and local jurisdictions are likely to assert that the Company is subject to, among other things, hotel occupancy and other taxes (i.e., state and local sales tax) and could seek to collect such taxes, retroactively and/or prospectively."
Thus, the hotel-tax battle is wide-ranging, and taking place on multiple fronts.