Weekly Round-Up: Hotel Occupancy Tax Dispute Heats Up

State interest is likely to increase in a contentious and costly dispute pitting online travel companies (OTCs) like Expedia Inc. and Travelocity.com LP against cities, counties and states. In August, a task force of the influential National Conference of State Legislators (NCSL) unanimously voted in favor of a resolution that sided with the municipalities, and against the OTCs, Bloomberg BNA editors Tom Gilroy and Tonya Sloans write in this week's issue of the Weekly State Tax Report.

The dispute, which centers around the proper calculation of hotel occupancy taxes on rooms reserved through OTC websites, shows no signs of abating, almost nine years into the fight.

Both sides in the dispute have taken their campaigns to the halls of state capitals.

In 2010, Missouri's state legislature passed an OTC-backed bill exempting the companies' "facilitation" fees from taxation, and as Washington, D.C.-based OTC trade association, Travel Technology Association noted, ten other state legislatures have considered tax law changes in the past two years, "and all ten have rejected them." However, similar OTC lobbying efforts elsewhere, particularly in hotel-rich Florida, have fallen short.

At the same time, New York, North Carolina, and the District of Columbia have all passed legislation in the last three years imposing the relevant taxes on the full price paid by consumers. 

And in late June, the Oregon legislature passed H.B. 2656, "clarifying" that the state's transient lodging tax is based on the full retail price paid by consumers. Gov. John Kitzhaber (D) signed it July 2, and the law took effect Oct. 7.

Looking forward, some states may heed the NCSL task force's resolution that states consider legislation requiring OTCs to pay taxes on the full price of rooms, but at least some municipalities view such clarifying legislation as a double-edged sword.

For one thing, it would only cover prospective taxes, not the decade or more in alleged unpaid taxes many cities, counties and states think the OTCs owe them. For another, the suing municipalities have always been wary of any such move out of fear that the OTCs could argue that such "clarifications" amount to an admission that the occupancy/lodging/excise taxes being used to claim back taxes were inadequate or ambiguous and, thus, should not apply.

However, the OTCs raised that argument in the District of Columbia lawsuit, and the court rejected it, concluding "that the District's modification was nothing more than an attempt to remove any lingering ambiguities in the plain meaning of the statute, and does nothing to undermine the … analysis of the pre-April 2011 statutes." 

Whatever state legislatures do, or do not do, litigation of many of the cases is likely to continue-possibly for years to come.

A listing by taxing jurisdiction of hotel occupancy tax litigation is available here.

The complete article by Tom Gilroy and Tonya Sloans is available in this week's issue of the Bloomberg BNA Weekly State Tax Report.

In other developments…

Morrison & Foerster LLP issues its October 2013 issue of New York Tax Insights, which includes, among other things, a recent decision upholding the personal liability of a corporate officer for a corporation's New York sales tax liabilities.

PwC issues its State Tax Quarterly Insights, July to September 2013.

The Multistate Tax Commission issues its Winter 2013 edition of MTC Review.

Compiled by Priya D. Nair
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