Precedent-setting ruling against online travel companies

ANAHEIM, CA – After years of underpaying transient occupancy taxes on hotel rooms, the nation’s top online travel companies are being forced to pay the City of Anaheim the difference, plus penalties and interest, said a spokesman for the city’s legal counsel, Dallas-based Baron & Budd, P.C. The US$21.3 million ruling, handed down on February 9 by Anaheim Hearing Officer Michael Miller is expected to influence a host of similar suits filed on behalf of local governments throughout the country.

“All along, this has been a very clear case of online travel companies cheating local governments by paying taxes only on the purchase price of discounted hotel rooms instead of on the retail price they charge consumers for them,” said Patrick O’Connell of Baron & Budd, who tried the case along with William Larson and Paul Kiesel of Kiesel Boucher & Larson; Gary Cruciani and Steve Wolens of McKool Smith; and Moses Johnson, Assistant City Attorney for Anaheim. “They tried to mislead consumers with unclear tax and service fees, but the hearing officer saw right through them.”

At issue in the case was the companies’ tax liability per the Anaheim Municipal Code – and the assessment of taxes owed over an undetermined period of time. According to the hearing officer, the defendants in the case, Expedia, Hotels.com, Orbitz, Priceline, Hotwire, and Travelocity, will be required to pay the 15 percent transient occupancy taxes on the difference between the wholesale and retail rates of hotel rooms they purchased and resold in Anaheim between 2000-2008, as well as all service fees associated with the transactions.

“This is especially good news at a time when local governments and the taxpayers they represent are feeling the effects of the economy,” said O’Connell. “We hope this is the first of many successful rulings to bring much-needed tax revenues back to the communities.”