The online travel agencies’ hotel tax mess: Every state, every case

The City of Los Angeles sued online travel agencies such as Expedia, Priceline, Travelocity and Orbitz in 2004, and over the intervening nine years, lawyers have built careers on the litigation.

Oh, some cases have been resolved, with OTAs winning the majority, but losing some big ones.

Looking at Priceline as a case in point, the company stated recently that it has established an accrual of $78 million as of March 31, 2013, and $56 million through December 31, 2012, to cover potential hotel tax liabilities, including penalties and fees.

The issues usually revolve around the question of whether online travel agencies “operate” hotels and must pay tax on the retail rate they charge consumers, or do they merely facilitate room sales for hotels, and should they therefore only be responsible for taxes on the net rate they get from the hotels.

Lacking any federal legislation on the matter, there is no end in sight to the lawsuits by states, counties, cities, towns and consumers, as well as audits, and enforcements actions by various tax authorities.

To get a feel for the extent of the problem, just take a look at the Priceline’s list from its recent quarterly SEC filing of the legal developments that took place — merely from January 1, 2013, to around the end of April 2013.

It isn’t just a Priceline story. Most of the other major OTAs are often parties to the same lawsuits.

If you have the interest and patience, read the following — and weep.

Fargo, North Dakota

In the quarter ending March 31, 2013, two new actions commenced. Fargo v. Expedia, Inc., et al., (filed February 2013) is an action brought by the City of Fargo, North Dakota against the Company and other OTC defendants asserting violation of the city’s lodging and sales tax ordinances, as well claims for conversion, unjust enrichment and seeking injunctive relief. Warrenville, et. al v. Priceline.com Incorporated, et. al, (filed April 2013) is a putative class action filed on behalf of the City of Warrenville, Illinois and certain other municipalities in Illinois. Although the Company is a named defendant in the action, it has not yet received service on the matter. The complaint alleges violation of the municipalities’ respective accommodations ordinances, conversion, civil conspiracy and unjust enrichment, and seeks a declaratory judgment. The Company intends to vigorously defend these claims. In addition, on March 27, 2013, the Company and other OTCs filed a petition for judicial review of the findings of fact, conclusions of law, decision and order of the Wyoming State Board of Equalization (issued February 28, 2013), finding that OTCs are subject to that state’s accommodations tax. On April 23, 2013, the Wyoming Supreme Court accepted the OTC’s appeal from the Board’s decision.

Broward County, Florida

On January 9, 2013, the court in Orbitz, LLC, et al. v. Broward County, Florida, et al. denied the county’s motion for rehearing on its previous ruling (July 13, 2012) granting summary judgment to OTCs. The county filed a notice of appeal to the Florida First District Court of Appeal on February 5, 2013.

 

North Carolina

On January 16 and 17, 2013, the county plaintiffs in Wake County v. Hotels.com, LP, et al., Dare County v. Hotels.com, LP, et al., Buncombe County v. Hotels.com, LP, et al., and Mecklenburg County v. Hotels.com, LP. et al., (North Carolina, Superior Court, General Court of Justice; filed in 2006 and 2007), respectively, appealed the final judgment, entered December 27, 2012, in favor of the Company and other OTC defendants. Previously, on December 19, 2012, the trial court denied the Counties’ motion for summary judgment and granted a motion for summary judgment in favor of the OTC defendants.
On January 23, 2013, the California Supreme Court denied petitions for review filed by the cities of Anaheim and Santa Monica. Those cities had sought review of appellate court decisions holding the Company and other OTCs are not liable for transient occupancy taxes. The Supreme Court’s denial of the petitions marks the end of the cases captioned Priceline.com Inc., et al. v. City of Anaheim, California, et al. (California Superior Court, County of Orange; filed in February 2009), and City of Santa Monica v. Expedia, Inc., et al. (California Superior Court, Los Angeles County; filed in June 2010). On January 31, 2013, the City of Santa Monica refunded to the Company the amounts the Company had “paid first” in order to appeal the city’s assessments.

Branson, Missouri

In City of Branson, Missouri v. Hotels.com, LP., et al. (Circuit Court of Greene County, Missouri), on January 23, 2013, the Missouri Court of Appeals, Northern Division, affirmed the judgment of the trial court (entered January 31, 2012) granting defendants’ motion to dismiss. On March 1, 2013, the city moved for transfer of the case to the Missouri Supreme Court; on April 30, 2013, the court denied that motion.

San Francisco

On February 6, 2013, the Los Angeles Superior Court in Priceline.com, Inc., et al. v. City of San Francisco, California, et al. (California Superior Court, County of Los Angeles; filed in June 2009) granted summary judgment in favor of the Company and other OTCs, holding they are not liable to the City of San Francisco for transient occupancy taxes. The court also granted the OTCs’ claim for a refund of the pay first amounts the OTCs paid to the city in July 2009. The Company expects the city to appeal.

It is not yet clear whether San Francisco will refund the pay first amounts prior to its appeal.

Hawaii

On February 8, 2013, the Tax Appeal Court of the State of Hawaii in In the Matter of the Appeal of priceline.com Incorporated (and a related action brought by Travelweb LLC) (Tax Appeal Court of the State of Hawaii) (filed July 3, 2012), entered an order denying the OTCs’ motion for partial summary judgment relating to the general excise tax, holding that the Company and the other OTCs are liable for that tax on the full amount the OTC collects from the customer for a hotel room reservation, without any offset for amounts passed through to the hotel. The court denied the OTCs’ motion for reconsideration on April 1, 2013. The Court has orally ruled that the Company will owe 50% penalties with respect to the alleged general excise tax liability, but has not yet issued an order specifying the amount of penalties to be imposed on the Company. On April 22, 2013, the Hawaii Supreme Court denied the OTCs’ petition for writ of mandamus, which sought relief from the Tax Court’s February 8 and April 1, 2013 orders and also from the “pay first” requirement to appeal the Tax Court’s judgment. On April 30, 2013, the Company and other OTCs filed a notice of appeal of the Tax Court’s February 8 and April 1, 2013 orders. The Company also intends to vigorously pursue an appeal of any order imposing penalties with respect to the alleged general excise tax liability.

Jefferson County, Arkansas

On February 9, 2013, in Pine Bluff Advertising and Promotion Commission, Jefferson County, Arkansas, et al. v. Hotels.com, LP, et al. (filed in September 2009), the trial court certified the action as a class action. The Company and other defendants filed a notice of appeal of that decision on March 8, 2013.

Leon County, Florida

On February 28, 2013, in Leon County, et al. v. Expedia, Inc., et al. (filed November 2009); (Florida First District Court of Appeal; filed in May 2012), the First District Court of Appeal affirmed summary judgment in favor of defendants. The appellate court denied the plaintiffs’ motion for a rehearing en banc on April 16, 2013 and granted plaintiffs’ request for certification to the Florida Supreme Court.

Denver

On March 12, 2013, in Expedia, Inc., et al. v. City and County of Denver, et al. (filed in March 2012), the court entered an order upholding the administrative hearing officer’s opinion that OTCs are subject to accommodations tax, but also finding that the statute of limitations limits any recovery by the City of Denver to the period April 30, 2007 forward. The Company filed a notice of appeal of that decision on April 26, 2013.

San Diego

On March 15, 2013, in City of San Diego, California v. Hotels.com L.P., et al. (California Court of Appeal), the City of San Diego filed its opening appellate brief. The Company and OTC litigants must file their responsive brief by May 15, 2013.

Gallup, New Mexico

On March 29, 2013, in City of Gallup, New Mexico v. Hotels.com, L.P., et al. (filed in July 2007), the court granted summary judgment to defendants, dismissing the action. Plaintiffs filed a notice of appeal to the Tenth Circuit Court of Appeals on April 22, 2013.

San Antonio, Texas

On April 4, 2013, in City of San Antonio, Texas v. Hotels.com, L.P., et al. (U.S. District Court for the Western District of Texas; filed in May 2006), the court entered its judgment against the Company and other OTC defendants. Previously, on August 27, 2012, the court granted plaintiffs’ motion to clarify its findings of fact and conclusions of law (issued July 1, 2011) to require the collection of hotel tax on the OTCs’ separately stated service fee from the date of its findings going forward. On January 16, 2013 the court denied defendants’ motion to amend its findings of fact and conclusion of law to enter judgment against plaintiffs and in favor of the OTC defendants based on the state appellate court decision in City of Houston, Texas v. Hotels.com, LP., et al. (District Court of Harris County, Texas; filed in March 2007). In City of Houston, on October 26, 2012, the Texas Supreme Court denied appellants’ petition for writ of error. The Texas Supreme Court did not disturb the intermediate court’s affirmance of the trial court’s grant of summary judgment, which rested on the conclusion that the tax provisions at issue applied only to amounts paid to a hotel. In the City of San Antonio matter, on January 17, 2013, the court denied plaintiffs’ motion to amend its findings of fact and conclusions of law regarding the calculation of penalties. The court rejected plaintiffs’ request to remove its limitation that penalties shall not exceed 15% of the total amount of unpaid taxes due at the time of judgment. The Company is appealing the judgment.

Nassau County, New York

On April 11, 2013, in County of Nassau v. Expedia, Inc., et al. (filed September 2011), the trial court certified the action as a class action. The Company and other OTC defendants filed a notice of appeal of that decision on April 26, 2013.

Los Angeles

On April 18, 2013, in City of Los Angeles v. Hotels.com, et al., (CA Superior Court, Los Angeles County; filed in December 2004), the Los Angeles Superior Court granted the OTC defendants’ motion for judgment granting a writ of mandamus, and denied the city’s cross-motion for denial of a writ of mandate, holding the OTCs are not subject to the city’s transient occupancy tax. The Company anticipates the city will appeal the decision.

Consumer complaint in Arkansas

On April 30, 2013, in Elizabeth McAllister, et al. v. Hotels.com L.P., et al., (Circuit Court of Saline County, Arkansas; filed in February 2011), the trial court granted the OTC defendants’ motion to dismiss, holding plaintiffs lack standing.

Baltimore County, Maryland

The Company resolved two matters by agreement: Baltimore County, Maryland v. Priceline.com, Inc., et al. (filed in May 2010) was dismissed against the Company on January 7, 2013, and Montgomery County, Maryland v. Priceline.com, Inc., et al. (filed in December 2010) was dismissed against the Company on April 5, 2013. In addition, in State of Florida Attorney General v. Expedia, Inc., et al. (filed in November 2010), the Attorney General for the State of Florida filed a notice of voluntary dismissal on April 8, 2013.

The Company intends to vigorously defend against the claims in all of the proceedings described below.

Statewide Class Actions and Putative Class Actions

Such actions include:

• City of Los Angeles, California v. Hotels.com, Inc., et al. (California Superior Court, Los Angeles County; filed in December 2004)

• City of Rome, Georgia, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Georgia; filed in November 2005); (U.S. Court of Appeals for the Eleventh Circuit appeal filed in September 2012)

• City of San Antonio, Texas v. Hotels.com, L.P., et al. (U.S. District Court for the Western District of Texas; filed in May 2006)

• City of Gallup, New Mexico v. Hotels.com, L.P., et al. (U.S. District Court for the District of New Mexico; filed in July 2007) ); (U.S. Court of Appeals for the Tenth Circuit; appeal filed in April 2013)

• Pine Bluff Advertising and Promotion Commission, Jefferson County, Arkansas, et al. v. Hotels.com, LP, et al. (Circuit Court of Jefferson County, Arkansas; filed in September 2009); (Arkansas Supreme Court; appeal filed in March 2013)

• County of Lawrence, Pennsylvania v. Hotels.com, L.P., et al. (Court of Common Pleas of Lawrence County, Pennsylvania; filed Nov. 2009); (Commonwealth Court of Pennsylvania; appeal filed in November 2010)

• Elizabeth McAllister, et al. v. Hotels.com L.P., et al., (Circuit Court of Saline County, Arkansas; filed in February 2011)

• Town of Breckenridge, Colorado v. Colorado Travel Company, LLC, et al. (District Court for Summit County, Colorado; filed in July 2011)

• County of Nassau v. Expedia, Inc., et al. (Supreme Court of Nassau County, New York; filed in September 2011); ); (Appellate Division, Second Department; appeal filed in April 2013)

• Warrenville, et al. v. Priceline.com Incorporated, et al. (U.S. District Court for the Northern District of Illinois; filed in April 2013; Company not served)

Actions Filed on Behalf of Individual Cities, Counties and States

Such actions include:

• City of Chicago, Illinois v. Hotels.com, L.P., et al. (Circuit Court of Cook County Illinois; filed in November 2005)

• City of San Diego, California v. Hotels.com L.P., et al. (California Superior Court, San Diego County; filed in September 2006) (Superior Court of California, Los Angeles County) (California Court of Appeal; appeal filed in August 2012)

• City of Atlanta, Georgia v. Hotels.com L.P., et al. (Superior Court of Fulton County, Georgia; filed in March 2006); (Court of Appeals of the State of Georgia; appeal filed in January 2007); (Georgia Supreme Court; further appeal filed in December 2007; petition for writs of mandamus and prohibition filed in December 2012)

• Wake County, North Carolina v. Hotels.com, LP, et al. (General Court of Justice, Superior Court Division, Wake County, North Carolina; filed in November 2006); (Court of Appeals of North Carolina; appeal filed in January 2013); Dare County, North Carolina v. Hotels.com, LP, et al. (General Court of Justice, Superior Court Division, Dare County, North Carolina; filed in January 2007); (Court of Appeals of North Carolina; appeal filed in January 2013); Buncombe County, North Carolina v. Hotels.com, LP, et al. (General Court of Justice, Superior Court Division, Buncombe County, North Carolina; filed in February 2007); (Court of Appeals of North Carolina; appeal filed in January 2013); Mecklenburg County, North Carolina v. Hotels.com LP, et al. (General Court of Justice, Superior Court Division, Mecklenburg County, North Carolina; filed in January 2008); (Court of Appeals of North Carolina; appeal filed in January 2013)

• The Village of Rosemont, Illinois v. Priceline.com, Inc., et al. (U.S. District Court for the Northern District of Illinois; filed in July 2009); (US. Court of Appeals for the Seventh Circuit; appeal filed in November 2012)

• Leon County, et al. v. Expedia, Inc., et al. (Second Judicial Circuit Court for Leon County, Florida; filed November 2009); (Florida First District Court of Appeal; filed in May 2012)

• Leon County v. Expedia, Inc. et al. (Second Judicial Circuit Court for Leon County, Florida; filed in December 2009); (Florida First District Court of Appeal; filed in October 2012)

• Hamilton County, Ohio, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District Of Ohio; filed in August 2010)

• Montana Department of Revenue v. Priceline.com, Inc., et al. (First Judicial District Court of Lewis and Clark County, Montana; filed in November 2010)

• District of Columbia v. Expedia, Inc., et al. (Superior Court of District of Columbia; filed in March 2011)

• Volusia County, et al. v. Expedia, Inc., et al. (Circuit Court for Volusia County, Florida; filed in April 2011)

• State of Mississippi v. Priceline.com Inc., et al., (Chancery Court of Hinds County, Mississippi; filed in January 2012)

• County of Kalamazoo, Michigan v. Hotels.com L.P., et al. (Circuit Court for the County of Kalamazoo; filed August 2012)

• Fargo v. Expedia, Inc. et al. (District Court for the County of Cass; filed in February 2013)

Judicial Actions Relating to Assessments Issued by Individual Cities, Counties and States

The Company may seek judicial review of assessments issued by an individual city or county. Currently pending actions seeking such a review include:

• Priceline.com, Inc., et al. v. Broward County, Florida (Circuit Court – Second Judicial Circuit, Leon County, Florida; filed in January 2009); (Florida First District Court of Appeal; filed in February 2013)

• Priceline.com, Inc. v. Indiana Department of State Revenue (Indiana Tax Court; filed in March 2009)

• Priceline.com, Inc., et al. v. City of San Francisco, California, et al. (California Superior Court, County of Los Angeles; filed in June 2009)

• Priceline.com, Inc. v. Miami-Dade County, Florida, et al. (Eleventh Judicial Circuit Court for Miami Dade, County, Florida; filed in December 2009)

• Priceline.com Incorporated, et al. v. Osceola County, Florida, et al. (Circuit Court of the Second Judicial Circuit, in and For Leon County, Florida; filed in January 2011)

• In the Matter of the Tax Appeal of priceline.com Inc. and In the Matter of the Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii; filed in March 2011); In the Matter of the Tax Appeal of priceline.com Inc. and In the Matter of the Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii, filed in July 2012)

• Expedia, Inc. et al. v. City of Portland (Circuit Court for Multnomah County, Oregon, filed in February 2012)

• Expedia, Inc., et al. v. City and County of Denver, et al. (District Court for Denver County, Colorado, filed in March 2012)

• Travelocity.com LP, et al., v. Wyoming Department of Revenue (District Court for the County of Laramie, 1st Judicial Dist.; petition for review filed and petition granted by Wyoming Supreme Court in April 2013)
• Administrative Proceedings and Other Possible Actions

At various times, the Company has also received inquiries or proposed tax assessments from municipalities and other taxing jurisdictions relating to the Company’s charges and remittance of amounts to cover state and local travel transaction taxes. Among others, the City of Phoenix, Arizona (on behalf of itself and 12 other Arizona cities); the City of Paradise Valley, Arizona; the City of Greenwood Village, Colorado; City of Littleton, Colorado; City of Golden, Colorado; City and County of Broomfield, Colorado; City of Colorado Springs, Colorado; City of Breckenridge, Colorado; City of Durango, Colorado; City of Grand Junction, Colorado; City of Greeley, Colorado; City of Lafayette, Colorado; City of Silverthorne, Colorado; City of Loveland, Colorado; City of Glendale, Colorado; City of Glenwood Springs, Colorado; City of Lakewood, Colorado; Arlington, Texas; Lake County, Indiana; Saratoga County, New York; and state tax officials from Arkansas, Colorado, Kentucky, Louisiana, Maryland, Michigan, Ohio, Pennsylvania, Texas, West Virginia, Wisconsin, and Wyoming have begun formal or informal administrative procedures or stated that they may assert claims against the Company relating to allegedly unpaid state or local travel transaction taxes. Between 2008 and 2010, the Company received audit notices from more than forty cities in the state of California. The audit proceedings in those cities have not yet been active but are not yet concluded. In June 2012, the City and County of San Francisco issued a second set of assessments to the Company, covering the period from the fourth quarter of 2008 through the fourth quarter of 2011. The Company administratively appealed those assessments, and the appeal was denied. At the conclusion of the administrative process, the Company paid the assessed amounts of approximately $2.7 million in January 2013 in order to be able to challenge the assessment in court. The Company filed a claim for refund, and the time for denial has now passed. The Company is working with San Francisco to determine whether to file an immediate appeal of the assessment or stipulate to a stay. In April 2013, the State of Hawaii issued a second set of assessments to the Company for both transient accommodations and general excise taxes; the Company intends to appeal the assessments. The Company has also been contacted for audit by five counties in the state of Utah, fifteen cities and counties in the state of Colorado, and by the City of St. Louis, Missouri.