Online Travel Companies Fight Federal Court’s $84M Judgment

By Jennifer McLoughlin

Online travel companies are pleading for reversal of a federal district court’s judgment they are liable for $84 million in hotel occupancy taxes, penalties and interest.

The OTCs reiterated to the U.S. Court of Appeals for the Fifth Circuit, in a reply brief March 29, their position that they don’t control hotels for purposes of the hotel tax ordinances of 173 Texas cities and argued that the Texas cities have conceded the point. The brief further contends that OTC fees charged to customers for online services don’t fall within the tax base as they don’t constitute the “cost of occupancy” ( City of San Antonio, Texas v. Hotels.Com, L.P., 5th Cir. App., No. 16-50479, reply brief filed 3/29/17 ).

The OTCs are asking to undo an April 2016 judgment by the U.S. District Court for the Western District of Texas. The district court ordered that several OTCs are obligated to collect and remit hotel occupancy taxes under the Texas city ordinances. The district court further ruled that the statutory tax base included the total retail price paid by consumers to the OTCs—including the difference between the retail price charged to OTC customers and the wholesale price paid by OTCs to hotels.

The district court’s judgment followed a twelve-person jury trial in 2009.

The OTCs—including Hotels.com LP, Hotwire Inc., Expedia Inc., Orbitz LLC, and Travelocity.com L.P.—filed for appeal in May 2016 and submitted their opening brief in November 2016. The 173 Texas cities making up the certified class also appealed from the district court’s decision limiting the award of penalties and prejudgment interest.

The OTCs claim in their reply brief that the cities’ cross-appeal “is essentially a complaint that the District Court’s award of $84 million, including more than $23 million in penalties and interest, is not enough.”

Cities’ Concession?

The OTCs note that the cities’ ordinances solely govern persons “‘owning, operating, managing, or controlling any hotel’ and define ‘hotel’ as a ‘building or complex of buildings … in which the public may obtain sleeping accommodations.’”

However, they contend the cities advance no argument and proffer no proof that the OTCs control “hotels” as defined under the ordinances or any accepted meaning.

"[T]he Cities want nothing to do with the statutory requirement of ‘controlling hotels’,” according to the OTCs’ reply brief. “Instead, they seek to change the issue—as the District Court did—to whether the OTCs control the ‘consumer transaction and consumer relationship.’”

“As much as the Cities wish to change the issue to whether the OTCs control the consumer transaction or relationship, the question for this Court is whether there was sufficient evidence for the jury to find that OTCs control hotels ‘according to the law that they were given [in the charge],’ which is ‘any building or complex of buildings’ in which accommodations are provided,” they added.

The OTCs have requested oral argument in the case.

To contact the reporter on this story: Jennifer McLoughlin in Washington at jmcloughlin@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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