Seven little words worth $21M -- 'OTCs do not control and run hotels'NewsBy Dennis Schaal | February 1, 2010Share This article was originally published on A California Superior Court in Los Angeles today set aside a hearing officer's decision in Anaheim, Calif., in 2009 that would have forced Priceline, Expedia, Orbitz and friends to shell out $21.3 million in hotel taxes tied to their practice of the merchant model.In a stunning reversal of a year-earlier decision, Judge Carolyn Kuhl of Los Angeles Superior Court, which was handling the Anaheim case, ruled today: "OTCs [online travel companies] do not control hotels."On Jan. 28, 2009, a hearing officer in Anaheim, Calif., found that Priceline, Expedia Inc., CheapTickets, Orbitz, Travelocity, Site59, hotels.com and Hotwire acted as hotel "proprietors" and "managing agents of hotels" when selling rooms via the merchant model and thus owed the city taxes on the difference between the net rate they get from the hotels and the retail rate they charge consumers.But, the court in Los Angeles shot down that argument, saying the local ordinance does not require taxes on the retail rate from "mere agents of the operator."In sum, based on the Hearing Officer’s factual findings, and giving the words of the Anaheim ordinance their ordinary meaning in context, the OTCs cannot be found to be hotel ‘operators,’ hotel ‘proprietors,’ or ‘managing agents’ of a hotel,” the court ruled … “The Hearing Officer acted contrary to law in assessing a tax based on the consideration charged by the OTCs, transaction intermediaries who are not operators, proprietors or managing agents of a hotel.”Darrel Hieber, a Skadden Arps partner who argued the case for the OTCs, commented:"The issue at the heart of this case is simple: Because online travel companies do not own, manage or operate hotels, they are not liable for hotel occupancy taxes. We are pleased the Court, after careful consideration, agreed that the plain meaning of this type of occupancy tax statute simply does not cover OTCs. This Court becomes the eighth around the nation to dismiss these types of claims on the merits, including two federal appellate courts. We believe it shows a growing consensus that these types of claims lack support in law or fact. We are heartened by the Court's decision, and hope it will encourage other municipalities to work with OTCs to increase local tourism through cooperation, rather than wasting time and energy on friviolous litigation."Today’s ruling is a huge victory for the OTCs, although they face dozens of ongoing lawsuits and audits across the country, and are seeking federal legislation to define their hotel tax obligations — or lack thereof — so they can stop the floodgates of litigation.