In Capitol corridors and courtrooms, cities and counties are arguing that companies such as priceline, expedia, orbit and hotels.com should charge and remit taxes based on the price the customer pays. The Online Travel Companies or OTCs argue that the tax should be based on the price hotels charge before the OTC markup.
Anaheim v. Priceline.com Inc., is one of a handful of cases nationally that may wind its way through the system all the way to the Supreme Court. In 2009, an administrative hearing officer ordered a group of OTCs to pay $21.3 million dollars in TOT not remitted to the tourism-heavy city on that mark-up between 2000 and 2008 plus penalties and interest.
“The issue at hand is full reimbursement of the taxes collected,” Anaheim Mayor Curt Pringle, was reported to say when the decision was announced. “There is no reason why online travel companies should be paying a different amount of taxes than others who book the same hotel rooms.”
A year later, Los Angeles Superior Court Judge Carolyn B. Kuhl reversed the decision, ruling in favor of the OTCs. She found that the OTCs were neither “operators” nor “managing agents” of the hotels and, therefore, were not obligated to collect and remit the TOT. She also said because the OTCs were not local, they were not subject to the tax on commercial activity in the city.
The City of Anaheim appealed and is waiting for a hearing, “any day now,” according to spokeswoman Ruth Ruiz.
In case they don’t win in court, OTCs are hedging their bets by lobbying the legislature to pass a law prohibiting the collection of that marked-up portion of the TOT tax.
Draft amendments sponsored by OTCs to Democratic Senator Rod Wright of Inglewood’s SB 625 would prohibit the collection of the marked-up portion of local TOT when hotel accommodations are booked over the Internet, League of California Cities Legislative Director Dan Carrigg warned members in a recent briefing.
“There is a lot at stake,” said Carrigg, “hundreds of millions of dollars.” As the internet continues to grow, he said this “double-standard” could set a precedent.
While legislation has not yet been amended into print, he is urging cities to talk to their legislators now about the importance of TOT revenue to their communities and oppose any legislation that would undermine this vital local revenue source.
“This has major implications for Sacramento,” said Sacramento Convention and Visitors Bureau President Steve Hammond. In the current economy, those dollars go to provide needed services.
Similar lobbying is also under way by both sides in Washington, D.C.
Meanwhile, more cities may heed the advice of Judge Kuhl, who said any attempt “to expand the plain meaning of the hotel tax ordinance without voter approval violates Proposition 218.” That could require a lot of cities to plan a trip to the ballot box.
JT Long can be reached at firstname.lastname@example.org