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Imposing tax for online travel transactions: What’s the law say?

“Like many other communities in this state and elsewhere, the City of San Diego (San Diego) has adopted an ordinance imposing a tax on visitors for the privilege of occupancy in hotels within the c

“Like many other communities in this state and elsewhere, the City of San Diego (San Diego) has adopted an ordinance imposing a tax on visitors for the privilege of occupancy in hotels within the city. The tax, known as a transient occupancy tax, is calculated as a percentage of the ‘Rent charged by the Operator’ of the hotel (San Diego Mun. Code, 35.0103).”

In this week’s article. we discuss recent developments in the imposition of state and local taxes on online travel companies (OTCs) in San Diego, California [see In Re Transient Occupancy Tax Cases, 2016 WL 7187624 (Cal. Sup. 2016) and on hotels in New York State Villages and Towns [see Spector, Cuomo approves new local hotel taxes, The Journal News (1/2/2017)]. We have previously discussed the taxing of OTCs in Dickerson, Internet Travel Transactions: Here comes the tax man, (5/8/2014) and Dickerson, Taxes on online travel companies” the fight against government, (7/9/2015). Each state may address the issue of taxing OTCs differently. Compare, for example, Hawaii [Matter of the Tax Appeal of Travelocity.Com, L.P. v. Matter of the Tax Appeal of Travelocity.Com, L.P. v. Director of Taxation, 2015 WL 1207380 (Hawaii Sup. 2015)(one of two taxes of OTCs approved) and Florida [Alachua County v. Expedia, Inc., 2015 WL 3618004 (Fla. Sup. 2015)(tax of OTCs not approved; see Ampel, Score One for Expedia,, Orbitz and Online Travel Companies, (6/11/2015). And see also: Evans v. City of Avon, 2016 WL 4426407 (Ohio App. 2016) (City of Avon’s attempt to impose an additional 3% excise tax on hotels found to be illegal).

Terror Targets Update

Islamabad, Pakistan

In Masood, A Wave of Grief and Anger After a Pakistani Shrine Is Bombed, (2/17/2017) it was noted that “Hundreds of protestors-enraged, inconsolable and demanding justice-converged outside a revered shrine in southern Pakistan, one day after an Islamic State suicide bomber killed more than 80 people in the country’s deadliest attack in years… More than 250 people were wounded in the explosion and local hospitals were quickly overwhelmed… the bomber’s suicide vest was filled with shrapnel, including ball bearings, bolts and screws, intended to inflict mass casualties”.

Hamburg, Germany

In Hamburg airport evacuated, closed after “unknown substance” inhalation makes 68 people sick, (2/12/2017) it was noted “Pepper spray could have caused the evacuation, according to firefighters’ spokesman. Medics treated 68 passengers for toxin inhalation at the airport, of which nine were transferred to a hospital…It all started with people complaining of breathing difficulties after being exposed to unidentified unpleasant odors at the airport in Hamburg on Sunday morning”.

Sydney, Australia

In Williams, ISIS Fighter’s Australian Citizenship Is Revoked Under Antiterror Laws, (2/13/2017) it was noted “An Islamic State fighter who posted a photo of a beheaded Syrian soldier online has become the first dual national to be stripped of his Australian citizenship under antiterrorism laws…a leading newspaper, The Australian, identified the person as Khaled Sharrouf, 35, reporting that a secret panel of intelligence officials, police officers and lawyers had revoked his Australian citizenship this year”.

Valentine’s Day Banned

In Pakistan bans Valentine’s Day, (2/13/2017) it was noted that “The Islamabad High Court on Monday imposed a ban on Valentine’s Day celebrations across Pakistan. The order came during the hearing of a petition arguing that the day was not part of Islamic tradition and should be banned… According to the court order, Valentine’s Day related festivities have been banned in public places. The electronic and print media have also been told not to give coverage to any promotion of the day”.

Murder City: Stay Away, Please

In Hauser, Chicago Reels as 3 Children Are Gunned Down in 4 Days, (2/15/2017) it was noted that “Three children fatally shot in four days: That is the latest grim toll in Chicago, which has been reeling from a wave of gun violence… After this month, the Bureau of Alcohol, Tobacco, Firearms and Explosives said it planned to send more agents to the city, where violence claimed more than 750 lives in over 35,000 shootings last year”.

Five Lessons Learned

In Peterson, Frugal Traveler, One Year In, Five Lessons Learned, (2/8/2017) it was noted that “The new year has already brought about significant changes to our world, including the way some of us travel. It also commemorates, less significantly, the one-year anniversary of my taking over the Frugal Traveler column…I’ve also spent entirely too much time actually flying this past year. But at least all that airtime has yielded lessons-some more painful than others. Here are five of them, picked up during my travels through 10 countries and a dozen states in 2016″. (1) Carry Valuable On Your Person, (2) To Eat Like A Local, Get In Line, (3) Make Sure Your Rental Car Is Covered By Insurance, (4) With Airbnb, Stay With A Local and (5) Great Deals? Board A Cruise Ship.

The Best Credit Cards

In Perrin, Travel Tips, The Best Credit Cards For Travelers, (2/7/2017) it was noted that “Whether you’re actually traveling or working your way toward a trip, the right credit card can be a big help in getting you there. There are three things that rewards credit cards can do for you, and it’s important to know why you’ve taken a particular card, and to use it accordingly. Some are best for the sign-up bonus miles…Some are best for ongoing spending…Some are best for the valuable perks”. Cards listed.

Empty Dutch Cell, Anyone?

In Bilefsky, Dutch Get Creative to Solve a Prison Problem: Too Many Empty Cells, (2/9/2017) it was noted that “The Netherlands has a problem many countries can only dream of: a shortage of prison inmates. While countries like Belgium, Britain, Haiti, Italy, the United States and Venezuela have grappled with prison overcrowding, the Netherlands has such a surplus of unused cells that it has rented some of its prisons to Belgium and Norway. It has also turned about a dozen former prisons into centers for asylum seekers. About a third of Dutch prison cells sit empty…Criminologists attribute the situation to a spectacular fall in crime over the past two decades and an approach to law enforcement that prefers rehabilitation to incarceration”.

Invasive Species Not So Welcome

In Nir, Downside of Being a Global Hub: Invasive Species, (2/8/2017) it was noted that “Some are disarmingly named, like the cutesy Chinese mitten crab. Others have names more indicative of their undesirable nature, like rock snot, an algae that slimes up cool forest streams. They are some of more than 100 invasive species that conservationists must battle in New York State, which teems with a growing number of plants, birds, fish, insects, mosses, molds and fungi that actually belong somewhere else. With some of the busiest airports and ports in the United States, New York has far more invasive species of certain types than any other state, federal officials say. Carried inside airplane wheels or in the ballast water of large boats, many creatures and spores show up in New York first, making it a laboratory of sorts where scientists and others strive to devise methods to banish the outsides or risk losing native flora and fauna to invading hordes”.

Luggage: The Bold & Beautiful

In Rosenbloom, The Latest in Luggage: The Bold and the Beautiful, (1/30/2017) it was noted that “Reports of lost luggage have hit a record low in the United States. There were about two accounts of mishandled bags for every 1,000 passengers in November, according to the (DOT)…If you have been longing to indulge in more refined luggage, now may be the time to spring for something new. Whether you check them or carry them on, today’s bags are stylish and high-tech, be they shiny spinners from the model Ines de la Fressange and the French label Lipault or sleek suitcases from the newcomer Raden with USB ports to charge your smartphone and tablet. And for something, shall we say, unconventional, there’s Modobag, a motorized suitcase that you can sit on and ride through the airport like a scoot-along toy. Below, a look at some of the more upscale innovations”.

Bed Bugs, Again

In Stashenko, Union’s Handbill About ‘Bed Bugs’ and Manhattan Hotel Is Not Defamation, Court Rules, (1/31/2017) it was noted that “Handbills that said a Manhattan hotel was ‘infested with bed bugs’ expressed protected speech and were not defamatory in a labor dispute between the hotel’s management and a painter’s union, a state judge ruled…The judge said in handbills passed out by members of District 9 of the New York International Union of Painters and Allied Trades were not malicious and expressed opinions that are constitutionally protected. The handbills were distributed outside the hotel in 2014 at a time when the union and the management of the New Yorker were embroiled in a dispute over whether painters were being paid the proper prevailing wage”.

The Disabled Traveler

In Glusac, For the Disabled Traveler, Strategies for a Successful Trip, (2/3/2017) it was noted that “Terry Scott Cohen, 42, enjoys roller coasters, mushing in Alaska and tobogganing in the Pyrenees Mountains. Though he gets about in a motorized scooter, he has not let his myotonic dystrophy, a disease involving progressive muscle loss, curtail his travels. His father, Barry M. Cohen, 72, a retired industrial psychologist, acts as his travel companion, and together the two Floridians have written a book, “Travel Near & Travel Far: Step Out of Your Disabled World’ that provides both encouragement for disabled travelers and practical advice on navigating the world from a scooter or wheelchair”.

Paris Is An Ocean

In Alderman, My Paris: Seduced by the Past, (2/1/2017) it was noted that “‘Paris is an ocean. Explore it and you still won’t know its depths’-Honore de Balzac. The streets of the Marais are narrow enough in some places that sunlight pierces the shadowy canyons between its soaring Renaissance-era buildings for just a few hours a day. At night, the lanes take on a mysterious, medieval air when streetlamps sputter to life, casting a sheen on timeworn turrets, carved doors and stone mansions. Slip into a cobbled alley off the Rue des Frances-Bourgeous, a main artery, and you’ll find yourself standing where the Duke of Orleans was assassinated in 1407 by a power-hungry rival’s henchmen. Around the corner, the magnificent 18th-century Hotel de Soubise palace, home to France’s national archives, showcases the last, anguished letter written by Marie Antoinette, bidding ‘adieu’ to her sister before heading to the guillotine”.

State Of Travel Insurance

In State of Travel Insurance 2017, produced by Berkshire Hathaway Travel Protection, [email protected] it was noted “We Project in aggregate, U.S. travel-insurance (TI) sales for international travel will increase 4.93% in 2017 to $2.22 billion. Last year we projected that travel-insurance sales would increase 7.8%. Sales actually increased 12.7% driven by a travel boom early in the year that was offset by fears over terrorist activities and lingering fears of disease epidemics tied to the Zika virus”.

Airport Lounge: What Could Be Sweeter?

In Rosenbloom, The Airport Lounge Scene: What You Get and How to Get In, (2/6/2017) it was noted that “Mango smoothies beckon. Soft pretzels dangle from a wooden rack. There are platters of Scottish smoked salmon, sausage, bacon, eggs, waffles, pancakes, croissants and cheese beside jars of homemade jams and a honeycomb hive tray. So, begins a Saturday morning in a Lufthansa first-class lounge at Frankfurt Airport, where one can while away the hours at the buffet, in a sleeping room or with a hot shower (robes and slippers at the ready). There are private work cabins, a bar, a cigar lounge and a candy station where glass vases brim with gummies, marshmallows and chocolate balls. What could be sweeter, one concludes with Wonka-like wonder, than a first-class lounge”.

Travel Law Article: Taxing OTCs And Hotels

San Diego, California

In In re Transient Occupancy Tax Cases the Court noted

“Like many other communities in this state and elsewhere, the City of San Diego (San Diego) has adopted an ordinance imposing a tax on visitors for the privilege of occupancy in hotels within the city. The tax, known as a transient occupancy tax, is calculated as a percentage of the ‘Rent charged by the Operator’ of the hotel (San Diego Mun. Code, 35.0103). In recent years, many visitors have booked and paid for their hotel reservations online at the websites of online travel companies (OTCs) such as defendants…in this case. The question before us is whether the San Diego transient occupancy tax is payable on the amount retained by the OTCs above the amount remitted to the hotels as the agreed wholesale costs of the room rental. We conclude that under the San Diego ordinance in a ‘merchant model’ transaction of the srt at issue here, the operator of a hotel is liable for tax on the wholesale cost plus any additional amount for room rental the operator requires the OTC to charge the visitor under what have been termed ‘rate parity’ provisions of hotel-OTC contracts but, as San Diego has effectively conceded, OTCs are not operators within the meaning of the ordinance”.

Nature Of The Transactions

“OTCs publish on their websites comparative information about airlines, hotels and car rental companies, and allow consumers to book reservations with these travel and hospitality providers. OTCs may do business under any of several business models; involved here is the one known as the merchant model. Under the merchant model, OTCs contract with hotels to advertise and rent rooms to the general public. OTCs handle all financial transactions related to the hotel reservations and become the merchant of record as listed on the customer’s credit card receipt, but do not themselves own, operate or manage hotels, maintain an inventory of rooms or possess or obtain the right to occupy any rooms. The price the hotel charges the OTC for the room is the ‘wholesale’ price; rate parity provisions in most master contracts between OTCs and hotels bar the OTC from selling a room for a rent lower than what the hotel quotes its customers directly. The OTC offers the rooms to the public at retail prices”.

The Tax Recovery Charge

“Its charge to the customer includes a ‘tax recovery charge’ which represents the OTC’s estimate of what the hotel will owe in transient occupancy tax based on the wholesale price of the room as charged by the hotel to the OTC. The OTC provides the customer with a receipt that lists the room rate and, on a separate line, an amount for axes and service fees. Once the reservation has been made and paid for, the OTC provides customer service until the customer checks into the hotel. The hotel then bills the OTC for the wholesale price of the room plus the transient occupancy tax the hotel will have to pay based on the room’s wholesale price. The OTC remits the charged Amount to the hotel, which in turn remits the tax to San Diego; the OTC retains its markup and service fees”.

The San Diego Ordinance

“First enacted in 1964, it provides that ‘[f]or the privilege of Occupancy in any Hotel located in [San Diego], each Transient is subject to and shall pay a tax in the amount of six percent (6%) of the Rent charged by the Operator’…Four times in subsequent years San Diego enacted increases in the tax rate without altering the ordinance’s operative language…Proceeds of the tax are to be used from promoting San Diego, including by planning, building and maintaining tourism-related cultural, recreational and convention facilities”.

Operator Defined

“Other provisions define the ordinance’s key terms… ‘Operator’ means the Person who is the proprietor of the Hotel…whether in the capacity of owner, lessee, sublessee, mortgagee in possession, licensee or any other capacity. ’Operator’ includes a managing agent, a resident manager, or a resident agent…’”.

The Class Action

“In December 2004, the City of Los Angeles filed a putative class action on behalf of various California cities against various OTCs alleging each such company was liable for transient occupancy tax as the ‘operator’ of every hotel. In October 2007, putative class member San Diego began auditing the OTCs. Eventually, it issued transient occupancy tax assessments against the OTCs, which each OTC timely appealed… (In 2010 a hearing officer) issued a decision, finding that the OTCs owed tax on their markup in merchant model transactions. (Subsequently a Superior Court vacated the hearing officer’s ruling reasoning that) OTCs are not operators or managing agents of the hotels and the markup the OTCs charge for their services is not part of the rent subject to the tax”.

This Appeal

The California Supreme Court held “That the OTCs act as hotels’ agents or intermediaries for the limited purpose of charging and collecting the rent, however, does not subject the OTCs to assess rents as an operator or make any undifferentiated portion of the charge representing the amount unilaterally set by the OTCs ‘Rent charged by the operator’. As noted, the hotels set the parity or floor rate the OTCs must charge the visitor, but do not control or determine any additional amount the OTCs may charge for their services, a circumstance that refutes any suggestion the OTCs are the hotels’ agent for purposes of settling and collecting such discretionary additional charges…

(The San Diego ordinance does) not subject any entity other than an Operator to assessment of the tax and penalties”.

New York State Local Hotel Taxes

In Spector, Cuomo approves new local hotel taxes, The Journal News (1/2/2017) it was noted that “Gov. Andrew Cuomo on Saturday signed bills that will let some Westchester County towns and villages charge an extra tax on hotel rooms (in amongst others) the villages and towns of North Castle, Greenburgh, Tuckahoe, Harrison, Dobbs Ferry, Hasting-on-Hudson, Mamaroneck and Port Chester…Cuomo approved the measures after vetoing the bills last year, saying the state doesn’t typically let towns and villages levy a hotel tax and that lawmakers needed a statewide policy on the issue. This year, Cuomo said the deal (came) with assurances from lawmakers that they will seek a statewide plan to address various local hotel taxes”.

Thomas A. Dickerson is a retired Associate Justice of the Appellate Division, Second Department of the New York State Supreme Court and has been writing about Travel Law for 41 years including his annually updated law books, Travel Law, Law Journal Press (2016), Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2016), Class Actions: The Law of 50 States, Law Journal Press (2016) and over 400 legal articles many of which are available at For additional travel law news and developments, especially, in the member states of the EU see

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Read many of Justice Dickerson’s articles here.