Digital Booking Sites

Score One for the Booking Sites as a Judge Dismisses Hotel Tax Lawsuit

Mar 18, 2014 10:00 am

Skift Take

Montana is a beautiful state, but hotel bookings generated there for the online travel agencies are paltry. Still, from their perspective, a win is a win, although the state may appeal the judge’s ruling.

— Dennis Schaal

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Northern Hotel

A judge dismissed a hotel-tax lawsuit brought by the State of Montana against major online travel agencies such as Priceline and Expedia. Pictured is the Northern Hotel in Billings, Montana. Northern Hotel

A judge has dismissed a lawsuit brought by Montana against 10 online travel companies the state claims are not paying their fair share of hotel and car-rental taxes.

The online companies, including Priceline, Orbitz and others, don’t pay taxes on the full amount they collect from customers who book rooms and vehicles through them, attorneys for the state Department of Revenue argued.

But District Judge Kathy Seeley ruled March 6 that Montana law requires the hotels and car-rental companies to collect and remit those taxes, and there is nothing in the law that imposes a tax burden on the online companies.

The online companies are “akin to travel agents” and there is no basis to require the payment of tax or collection of tax by them, Seeley ruled.

The 2010 lawsuit says the online companies calculate taxes based on the retail rates customers pay to reserve rooms and cars, and then collect that amount from the customers. But the taxes actually paid to the state by the hotels and car-rental companies are based on the lower rates negotiated between them and the wholesale online brokers.

The online companies keep the difference.

The state has said it wants to make sure that the industry pays its share of taxes and level the playing field for other hotels and others that book directly with the consumers.

Industry officials have estimated the difference between the wholesale and retail amounts in online bookings is so small that the tax would only generate an extra $100,000 for the state.

Department of Revenue Director Mike Kadas said in a statement his agency is disappointed in the ruling and was considering an appeal to the Montana Supreme Court.

“The department remains steadfastly committed to the purpose of this litigation; to ensure tax transparency and fairness of the tax system to benefit Montana and its citizens,” Kadas said in the statement.

The defendants in the case are Priceline.com Inc., Travelweb LLC, Trip Network Inc., Orbitz LLC, Expedia Inc., Hotels.com, Hotels.com LP, Hotwire Inc., Travelocity Inc. and Sites59.com LLC.

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