Chalk up a big win for major online travel agencies in the U.S. on the hotel tax issue regarding a San Diego, California, case.
The Los Angeles Superior Court, which is handling the case, overturned the City of San Diego's decision that the OTAs were liable for $21.3 million in back hotel occupancy taxes and penalties for their merchant model sales of hotel rooms.
Under the merchant model, the OTAs remit taxes to the hotels on the net rate, but don't pay taxes on their margins or service fees.
The court held that the OTAs are not hotel operators, as defined by the San Diego Transient Occupancy Tax Ordinance, and their service fees are not subject to the occupancy tax.
The court also held that the OTAs are not "managing agents" for the hotels since the OTAs "do not have any authority over the hotels' corporate policies."
"Moreover, the facts of the case do not lead to the conclusion that the OTCs (online travel companies) were agents or joint venturers of the hotel, in a capacity of being the proprietors of the hotel," the court found.
A hearing officer in San Diego had ruled on May 28, 2010, that the OTAs were hotel operators and they were subject to the tax on their margins.
The San Diego ruling had been one of the largest adverse rulings against the OTAs.
The reversal of the hearing officer's decision undoubtedly is great news for Expedia Inc., which had been considered liable for $16.5 million of the $21.3 million in San Diego.
Defendants in the case included Priceline, Travelocity, Orbitz and others.
The Interactive Travel Services Association, which counts OTAs among its members, says the OTAs have "prevailed in 15 of the 19 cases nationwide where courts have ordered judgment, and appellate courts have affirmed four of those favorable judgments."
The cross-country litigation is still a major headache for the OTAs.
Art Sackler, ITSA's executive director, argues that the lawsuits are counter-productive.
"Online travel sales provide global marketing opportunities for local tourism," Sackler says. "Municipalities and online travel companies should work together to promote travel and tourism for everyone's benefit rather than boths sides expending precious resources on futile litigation."