LOS ANGELES -- A
hotel occupancy tax suit filed by this city against major online
travel sellers could crunch their bottom lines and challenge the
standard way they sell merchant inventory.
The city of Los
Angeles last month sued 18 companies, including Web giants Expedia,
Travelocity, Orbitz and Priceline, alleging that they fraudulently
pocketed hotel occupancy taxes that they charge
The city, which
seeks class-action status for the complaint, wants restitution and
other relief that could mean major tax liabilities, especially if
other tax authorities around the country take similar
argument is that the online sellers rent hotel rooms to consumers
and act as hotel operators when they do so, collecting occupancy
taxes but remitting only a portion of whats owed.
alleges that the travel sites charge and collect taxes from
occupants based on the marked-up room rates, but only remit ... tax
amounts based on the lower, negotiated room rates. Defendants ...
then pocket the difference.
agencies deny that they keep any taxes that they charge consumers.
They generally say that when they sell hotel rooms on a merchant
basis, the taxes and fees they charge are based on the net rate;
the remainder is their margin.
One of the
attorneys for Los Angeles, Steven Wolens, said that argument is a
bill of goods, and there is no basis for it.
Wolens said the
online travel sellers collect taxes on the retail rate, noting that
they admit as much in financial disclosures and that some
jurisdictions, like California, require them to detail taxes as a
separate line item.
Travel Services Association (ITSA), which includes Web travel
companies and GDSs, said in a statement that the suit is
The claim that
ITSA members do not remit collected taxes is false, said ITSA,
speaking for at least some of the defendants. The citys hotel tax
does not apply to online travel companies, which are not hotel
operators and do not collect rent.
ITSA charged that
Los Angeles is trying to levy a new tax on Web
and retailers have encountered problems with tax authorities in
several jurisdictions and are negotiating with some, but the Los
Angeles case is believed to be the first one to land in
jurisdictions may also resort to legislation. In Massachusetts, for
example, the governors office plans a renewed push for legislation,
which failed last year, that would require online travel sellers to
pay an additional $10 million to $20 million annually in hotel
the opacity of the way fees are levied right now, said Henry
Harteveldt, Forrester Researchs vice president of travel research,
referring to the bundling of taxes and fees.
The end result,
he said, may be that the intermediary will be required to list
taxes as a line item and fees as another -- and that will mean that
the fees will have to come down.
are aware of the dimensions of their potential tax liabilities.
InterActiveCorp, Sabre and Orbitz have reserves to deal with the
reporter Dennis Schaal, send e-mail to [email protected].