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New York Court Finds Increase of Occupancy Tax on Online Travel Companies Improperly Implemented

Friday, December 9, 2011
Ashok Chandra | Bloomberg Law Expedia, Inc. v. City of New York Dept. of Finance, 2011 NY Slip Op 08648 (App Div, 1st Dept Nov. 29, 2011) The Appellate Division of the Supreme Court of New York determined that a tax increase implemented by New York City's Department of Finance on online travel companies was not valid. The court observed that the enabling statute only allowed for a tax increase on hotel occupants and not travel agencies. Plaintiffs, including Expedia, Inc. and other online travel companies commenced an action against New York City's Department of Finance, challenging the constitutionality of Local Law 43, which amended New York City's Administrative Code § 11-2501 to have the existing hotel room occupancy tax "include imposition of the tax on the service or booking fees earned by plaintiffs in connection with hotel room reservations." Expedia at 1. Plaintiffs contended that defendants did not have the authority to expand the occupancy tax. The court noted that the "enabling legislation authorized the City of New York to impose on a hotel occupant a tax at a rate of up to six percent of the rent or charge per day for each hotel room." Id. The court determined that the language of the enabling legislation did not confer upon the City broad taxation powers with regard to imposing a hotel occupancy tax on the plaintiffs. Rather, the court observed that the language of the enabling statute specifically only allowed the city to expand the tax with regard to hotel occupants. The court observed that a statute that levies a tax "must be narrowly construed" and "any doubts concerning its scope and application are to be resolved in favor of the taxpayer"Debevoise & Plimpton v New York State Dept. of Taxation & Fin., 80 N.Y.2d 657, 661 (1993). The court noted that the plain meaning of the phrase in the enabling statute did not encompass the service fees charged by the online travel companies and it was improper for legislation to be extended so as to permit the imposition of the tax in this situation. The court observed that in order to extend the tax to cover online travel companies, the state legislature would have to take action. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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