ANAHEIM – A Los Angeles Superior Court judge has overturned an earlier ruling that would have given Anaheim $21.3 million in back taxes and penalties from online travel companies such as Expedia and Travelocity.
The city in 2007 had sued the online travel companies for a larger share of hotel-bed fees – so-called transient occupancy taxes – collected through online booking.
Attorneys for Anaheim had argued that the city was owed a greater share because the online companies were collecting taxes from customers on the retail price of hotel rooms, but only paying the city the tax on the wholesale price.
Guests in Anaheim pay a 15 percent tax on their lodging bills. For instance, if a company had been paying $15 on a room it bought for $100 when the final selling price to a customer was $120 – then, the city argued it should also get an extra $3.
An administrative-hearing officer sided with the city last year, ruling in February 2009 that Anaheim was owed $21.3 million because the online travel companies (OTCs) were both the proprietor and the managing agent of the hotels they resold. The amount was determined based on taxes collected from 2000 to 2008.
The travel companies appealed that decision to Orange County Superior Court. Later the case was transferred to Los Angeles County, where similar cases were being heard.
Darrel Hieber, an attorney for the travel companies said “The issue at the heart of this case is simple: Because online travel companies do not own, manage or operate hotels, they are not liable for hotel-occupancy taxes. We are pleased the court … agreed that the plain meaning of this type of occupancy tax stature simply does not cover online-travel companies.”
The decision is a blow to Anaheim, which already is struggling to trim from its budget and has laid off 11 employees and is considering more cuts.
Anaheim Mayor Curt Pringle, who had called the initial ruling “logical and fair,” could not immediately be reached for comment on the ruling being overturned.
Earlier, Pringle had said “There is no reason why online travel companies should be paying a different amount of taxes than others who book the same hotel rooms. … Online booking isn’t going away, and it’s important that the tax is equitable for everyone.”
The stakes are particularly high in Anaheim, where the tax on rented rooms brought in $87 million in 2008.
The ruling in the Anaheim case is likely to set a precedent that could help decide several similar cases, travel industry officials said.
Hieber, the attorney for the travel companies, said he hopes it will send a message.
“We hope it will encourage other municipalities to work with OTCs to increase local tourism through cooperation, rather than wasting time and energy on frivolous litigation.”