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Travel booking sites prevail in Tenn. tax suit

February 29, 2012
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NASHVILLE, Tenn.—Hotel booking websites including Priceline, Travelocity, Expedia and Orbitz have prevailed against more than a hundred Tennessee counties and municipalities in a legal fight over hotel tax collections.

A federal judge granted a summary judgment in favor of the online travel companies last week, The Tennessean reported (http://tnne.ws/w0c56b). U.S. District Judge Aleta A. Trauger said the state's hotel tax should be levied based on what hotels charge, not on the rate consumers pay if they book a room through one of the travel sites.

The lawsuit was filed by the cities of Goodlettsville and Brentwood in 2008, claiming that they were owed as much as $5 million in unpaid hotel taxes. The lawsuit was granted class certification and a total 129 local governments joined in.

The municipalities and counties argued that taxes should be levied on the total that consumers pay through the online travel sites, which includes a discounted room rate plus a markup for the travel sites' services.

The online travel companies successfully argued the additional markup should be excluded from the tax calculation. Jeffrey A. Rossman, a Chicago attorney representing Orbitz, said the case is one of several similar ones across the country.

"This is another important victory in favor of the online travel companies," Rossman said.

Trauger made her ruling based on the language of Tennessee's "tourist accommodation tax," which says hotel taxes are to be assessed on the "consideration charged by the operator."

"Thus, the essential legal question is whether an (online travel company) . constitutes an `operator,' " Trauger wrote in her decision.

The online travel sites agree to contracts with the individuals hotels on a wholesale rate for rooms booked through the online site.

But the judge concluded that "it is at best doubtful whether the (online travel companies) in fact `control' hotel rooms under any dictionary definition of the term `operate.' "

Rossman said hotel tax laws drafted before the Internet age shouldn't apply online travel booking websites and Trauger's ruling and others across the country prove that.

"The overwhelming majority of courts have ruled in favor of online travel companies," he said.

But one exception came in a Georgia case. Their state Supreme Court ruled Expedia did have to pay hotel taxes on the full rate paid by a customer because their state law states that the tax is to be applied to the "charge to the public."

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Information from: The Tennessean, http://www.tennessean.com

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