Originally Published on forbes.com on November 6th, 2011
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Many localities tax hotel room occupancy and admissions to entertainment events. It does not seem to be the type of thing that should be raising nexus issues. The rights to occupy the rooms and attend the events are being traded in cyberspace, though, which complicates things. I recently wrote about the City of Chicago trying to get StubHub to collect admissions taxes on the premium that ticket sellers charge over face value. They did not have any luck. Orange County Florida is working on a deal with Expedia according to this story. The issue is similar. The operators remit room tax based on what they collect from Expedia not what Expedia collects from its customers.
The City of Bowling Green has also given it a shot. They took on a dozen companies including Expedia and Orbitz over the issue of the basis for rooms tax. The City thinks the room tax should be collected based on the price charged by the on-line travel company (OTC) rather than what the OTC pays the operator. The case was heard in the Court of Appeals of Kentucky.
The Court was with the companies on this one:
The City of Bowling Green argues that, under the plain meaning of the words used in the enabling act and its ordinance, the transient room tax should be imposed upon the Appellees. They contend that the “like or similar accommodations businesses” phrase does not merely apply to “bricks and mortar” establishments. We do not find this reasoning persuasive.
the Sixth Circuit held that “ecause the OTCs lack any physical presence in these locations, however, they do not ‘specially’ benefit from increased tourism in those cities any more than they would from an increase in tourism in any other part of the country.” Thus, the Court concluded that the OTCs did not benefit from the tax in the way hotels, motels and the like did.
So the City cannot tax the service that the OTCs provide, but there was another argument. If the OTCs collect the tax, should they not be required to pay it over to avoid “unjust enrichment”? The Court indicated that that particular argument did not get the city anywhere.
We find, however, that it would be the consumer who would have standing to challenge the OTCs in such a manner, rather than the City. Thus, we affirm the decision of the trial court dismissing the action in its entirety.
In a world in which someone will try to start a class action law suit over a 12 cent sales tax overcharge, there seems to be some opporuntity here. Is Expedia collecting local room tax and not remitting it ? I went through some of the process of booking a room in Bowling Green to see what the fine print looked like. This is what I found:
The actual tax amounts paid by the Expedia Companies to the hotel suppliers may vary from the tax recovery charge amounts, depending upon the rates, taxability, etc. in effect at the time of the actual use of the hotel by our customers. We retain our service fees as compensation in servicing your travel reservation. Our service fees vary based on the amount and type of hotel reservation.
So when you book through Expedia you really do not know how much room tax you are paying. They are charging you an amount, some of which will go the taxing entity. They will keep the rest. Something about that bothers me.