Online travel companies including Expedia, Hotels.com, Orbitz and Travelocity have been ordered to pay the city of Anaheim, California US$21 million for significant back taxes, fees and penalties related to the payment of hotel occupancy taxes.
Attorneys from the national law firm of McKool Smith represented the city of Anaheim in a recent administrative proceeding that resulted in the landmark decision, which is believed to be the first authoritative ruling that supports the stance of more than 40 other municipalities and governmental entities from across the nation that have filed claims seeking a larger share of hotel occupancy taxes collected by the online travel companies.
Attorneys from McKool Smith said they argued that the city was owed the additional revenue because the online travel companies pay taxes only on the wholesale price of a hotel room booking, but collect and retain taxes on the higher, retail price. The defendant companies are required to pay the city based on rooms booked through their sites between the years 2000 and 2008 in Anaheim. The city was represented by attorneys Steve Wolens and Gary Cruciani of McKool Smith’s Dallas office, along with co-counsel from Los Angeles’ Kiesel, Boucher & Larson and Dallas’ Baron & Budd.
The Anaheim ordinance, as is the case with many of the hotel tax ordinances in cases brought by other municipalities against the online travel companies, required the city to first exhaust its administrative remedies before going to court. After a two-week evidentiary hearing, the Hearing Officer found that the online travel companies were both “operators” and “managing agents” as defined by the city’s ordinance, which is key in establishing their responsibility and liability.
“This is an exhaustive, well-reasoned opinion that we believe will be persuasive authority in other hotel tax litigation, particularly for those cities with similar language in their ordinances,” says Mr. Cruciani. “The ruling affirmed our position that these companies must collect and remit hotel taxes based on what they actually charge their customers.”
“With this ruling, the jig is finally up on online travel companies that have been cheating local governments out of taxes they knowingly owed,” said O’Connell, who focuses his practice on battling fraud against the government,” said Patrick O’Connell, the city’s legal representative of Baron & Budd.
O’Connell added: “For years, they’ve tried everything to avoid paying their fair share: tying up the courts with legal stalling; lobbying for Congressional amnesty; and even blatantly violating local ordinances. We hope that Anaheim will be the first of many localities to receive from these companies what is both fair and vitally needed in this economy.”
The online travel companies, however, are fighting back, reported the Los Angeles Times. The travel sites contend that cities like Anaheim are trying to use old-school formulas that don’t make sense in the cyber age.
The Anaheim ruling was issued on February 6 and, according to Mr. Cruciani, the online travel company defendants, which have filed an appeal, must pay the cash award as a condition to their right to appeal the ruling.