Major online travel agencies, including Expedia, Priceline, Travelocity and Orbitz, lost a class-action lawsuit by 173 cities in Texas and could owe them more than $20 million in hotel occupancy taxes.
The case, the City of San Antonio vs. Hotels.com, was initially filed in May 2006 and is one of the longest-running cases against the OTAs. It received class-action status in 2008 and all cities in Texas are involved, with the exception of Houston and Watauga, which opted out.
A jury in Texas on Oct. 30, 2009 decided that the OTAs were “controlling hotels” using the merchant model because they set the retail prices of hotel rooms and collected taxes from consumers, and were liable for nearly $20.6 million in hotel occupancy taxes.
The San Antonio Division of U.S. District Court was charged with deciding remaining issues and on July 1 Judge Orlando Garcia affirmed the jury’s findings and ruled that the OTAs have a duty to collect taxes on the full retail rate they charge consumers — not the wholesale rate they get from hotels — including the OTAs’ margins and service fees.
Referring to the way the OTAs bundled “taxes and fees,” the judge wrote in his ruling:
The OTC’s (Online Travel Companies) must be fully transparent about the amount of taxes being assessed in every consumer transaction. The OTCs must clearly state the amount of hotel occupancy taxes being assessed on the retail price that the consumer/occupant/taxpayer is being charged for the right to occupy a hotel room.
The exact amount of the OTAs’ tax liability in the case likely will be considerably higher than the $20.6 million amount set by the jury in 2009.
The court hasn’t yet issued a judgment, but held that the OTAs would also be liable for the tax liabilities which accrued in the interim, including tax on their markup, breakage, service fees, extra person fees, plus damages, penalties and interest.
The court ruled that the OTAs were liable for tax on their service fees, but not for damages on their service fees or taxes on cancellation fees.
The court ruled that the OTAs must pay taxes directly to Texas cities on the retail rate and not remit them via the hotels.
The OTAs already are paying taxes directly to New York City and Columbus, Ga., the court said.
The OTAs plan to appeal the case.