OTAs Win in Louisville on Occupancy Tax Issue

This morning, the United States 6th Circuit Court of Appeals affirmed a lower court's motion to dismiss a lawsuit filed by Louisville against the usual Online Travel Agency (OTA) suspects.

Full opinion here for your reading pleasure.

As is usual in these cases, Louisville (and some surrounding areas) filed a lawsuit claiming the OTAs had not paid occupancy taxes based on the rate charged to consumers on their website but rather on the wholesale rate remitted to lodging operators.

The lower Court rejected Louisville's suggestion that the OTAs are not "like or similar" to "motor courts, motels, hotels or inns" because they "have neither ownership, nor physical control, of the rooms they offer for rent." In fact, according to the ruling issued today, the court remarked that the Kentucky laws had "simply failed to keep up with the times."

Of course, Louisville et al appealed this ruling - Today, the court agreed with the lower court's analysis.

A few highlights:

This ruling is a clear rejection of the way the taxation statutes are written today. In particular, the Court ruled that "like or similar" was vague and unclear when questioning if the OTAs were "like or similar" to hotels etc. The Court was concerned about how broadly this "like or similar" verbiage could be construed.

Similarly, the Court ruled that taxes are collected on the "entities doing business as hotels and the like" not the individual occupants of the hotel rooms. As such, the Court rejected counties' suggestion that the amount paid by the ultimate consumer was the amount that should be taxed.

Finally, the Court looked at several other rulings where concern was raised that a hotelier could simply sell all their rooms through a subsidiary of some sort at a very low rate, collect the tax on said low rate and then simply market the rooms to consumers at a higher, marked up price. Thankfully, the Court rejected this claim and suggested that the right place to fix this problem was through legislation, not the courts. They also rightly noted that, in this case, anyway, there is no common ownership between the OTAs and the hoteliers.

This final claim, while positioned as a absurdity, shows the basic lack of understanding of hotel distribution that exists out there. While we doubt the Court has taken any of Bill Carroll's classes up at Cornell, they did a nice job of rejecting this concept which ignores the fundamental ways in which the majority of hotel rooms are distributed - which isn't via OTAs.

Oh, and anyone stayed at a "Motor Court" recently?


Thanks to bluehighwaysofamerica.blogspot.com/ for this great image!

Florida AG sues Expedia and Orbitz - If cities can, we can too

Bill McCollum, the Florida Attorney General filed suit against Expedia and Orbitz this afternoon, opening the next chapter in the ongoing fight over occupancy taxes. Florida is the first state to take such a step - all of the previous actions have been filed by cities or groups of cities in a specific state.

It is not clear why the suit was only filed against Expedia and Orbitz - in the past these actions have usually been taken against all of the major OTAs including Priceline and Travelocity, among others.

In reading the actual complaint, there does seem to be some confusion in how the merchant model actually works.

For example, in Section 9: "each Defendant purchases and receives inventories of hotel rooms at negotiated rates from the hotels." and "re-sells the rooms to consumers at rates determined by that particular Defendant." Lets take a look at these two statements. Does Expedia, in most cases anyway, actually purchase a block of rooms and hold the inventory? No, not since the early days of Hotels.com - most, if not all, rooms are not purchased and held in advance. As far as determining the rates paid by consumers, again, certainly in the case of the chain hotels, the OTAs are not setting the prices - the chains are through their contractual agreements.

The AG claims that the OTAs are using a "purchase and resale" model which just isn't the case.

The big issue is that the model roughly described by the AG has been in place long before the Internet came around - how do they think all those rooms at Disney World are filled? Thousands of rooms are sold every night in Florida under the wholesale model - I bet more than in any other state in the country except for maybe Nevada. These wholesalers also remit the taxes back to the state based on the wholesale or net portion of the room rate, not on what the consumer actually paid for their package which may include Disney tickets and plenty of other things also bought on a wholesale basis.