Travel sites win key US tax ruling

Online travel companies including Expedia have won the first of several pending legal battles to roll back tax assessments by California cities that claim they owe tens of millions of dollars in occupancy taxes.

Los Angeles Superior Court Judge Carolyn Kuhl set aside last year’s decision by a city hearing officer that the travel booking sites owed $21.3 million to the city of Anaheim in back hotel taxes.

The request was made by Priceline.com Inc, Expedia Inc, Trip Network Inc, Orbitz LLC and Travelocity.com LP, Hotels.com LP and Hotwire Inc. The companies had argued that they are not liable for the 15-percent hotel occupancy taxes because they do not operate hotels, and their fees cannot be considered “rent” under the tax law.

Such disputes are increasingly common between online travel companies and tourist-dependent cities and lawsuits or complaints have been filed around the US by cities or customers, including in Georgia, Maryland, Texas, New York, Illinois, Pennsylvania and in the California cities of San Diego and San Francisco.

The lawsuits relate to the complicated pricing schemes used by online travel sites.

Consumers make reservations at the sites, paying more for a room than the online outfits pay the hotels for the room, allowing the online companies to profit from the difference. But the taxes are paid on the cheaper rate which means if a travel site buys a room from a hotel at $50 and sells it for $100, the site sends the hotel taxes for the amount it paid and not the price it charged. The rate of the mark-up remains confidential.

Cities argue tax should be paid on the higher rate.