The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.
A three-judge panel of the U.S. Court of Appeals for the Sixth Circuit affirmed a lower court ruling that online travel companies (OTCs) like Hotels.com L.P., Expedia Inc. and Priceline.com Inc. do not owe occupancy taxes on the mark-up they charge customers who book hotel rooms on their internet sites. [Columbus, Ohio v. Hotels.com LP, 6th Cir., Nos. 10-4531/4545, filed 9/10/12]
The decision by the Sixth Circuit, which ruled the same way in a similar case brought by Louisville, Ky., and surrounding Jefferson County, Ky., marks another victory for the OTCs in their battle against dozens of cities, counties and states around the country that claim the OTCs have systematically and deliberately underpaid occupancy taxes for the last decade.
It also underscores, yet again, the importance of the specific language contained in local tax ordinances that were often written long before the advent of internet-based commerce.
The Sixth Circuit panel, as it did in the Louisville case, found that the occupancy ordinances of the six cities, four townships, and a county authority that formed the plaintiffs in the instant case place the responsibility for collecting and remitting the tax on some variation of “owners” and/or “operators” of hotels.
“Though the online travel companies advertise places that offer sleeping accommodations, the online travel companies do not advertise themselves to be places where sleeping accommodations are offered,” Circuit Judge Boyce F. Martin, who wrote the opinion, stated.
The appellate panel also rejected the municipalities' argument that the OTCs owed taxes on the full price paid by customers, and not just on the lower, wholesale rate the online firms negotiate with hotel chains, because enabling Ohio legislation allowed the cities and town to tax the “rent paid” by a customer for a room.
The relevant ordinances “levy a tax on the amount charged by the hotel or otherwise paid for lodging or occupancy, and not on charges beyond this amount,” Martin noted.
“The language of the ordinances, regulations, and resolutions is aimed expressly at taxing the cost of furnishing hotel lodging, and does not purport to tax the additional fees charged by the online travel companies,” he added.
Decision in Legislature's Hands
As it noted in the Louisville case—and as other courts around the country have stated—the Sixth Circuit court said “the decision to assign liability to online travel companies is one that remains in the hands of the legislature and not this Court.”
Finally, the court found that the localities failed to provide evidence that the OTCs' practice of bundling service and tax fees on their websites deceived customers about the amount of tax being remitted to state and local tax authorities.
The Sixth Circuit also affirmed the district court's refusal to certify questions to the Ohio Supreme Court concerning the applicability of occupancy tax laws to the OTCs, noting that “(t)he appropriate time to seek certification of a state-law issue is before a District Court resolves the issue, not after receiving an unfavorable ruling.”
John T. Murray of Sandusky, Ohio-based Murray & Murray, who represented the municipalities, declined to comment on the ruling.
“We are pleased that the court affirmed this important decision,” Joseph Rubin, president of the Interactive Travel Services Association, the OTCs' Washington-based trade group, told BNA in an email. Further, he expects “this trend to continue as more and more courts recognize that the online travel companies have both the law and the facts on their side.”
The text of the decision is available online at http://www.ca6.uscourts.gov/opinions.pdf/12a0316p-06.pdf.
By Tom Gilroy
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)