Cities file suits vs. online travel agents - East Valley Tribune: Nation / World

Cities file suits vs. online travel agents

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Posted: Friday, May 12, 2006 11:57 am | Updated: 5:10 pm, Fri Oct 7, 2011.

DALLAS - Several cities around the country have sued Web-based travel clearinghouses such as Expedia, Travelocity and Orbitz, claiming they have failed to pay millions of dollars in hotel taxes.

San Antonio filed a class-action lawsuit this week seeking to recover lost taxes, and Los Angeles, San Diego, Philadelphia, Atlanta and Chicago have filed similar suits. The state of Texas and its two biggest cities, Dallas and Houston, are considering their own actions.

San Antonio believes online travel agencies negotiate room discounts from hotels, and sell the rooms at a markup to consumers. The agencies, though, only pay hotel taxes on the wholesale price.

"This scheme is being perpetrated by the Web-based hotel travel companies on every city and state in the country as far as we can tell," said Steve Wolens, a lawyer representing the city of San Antonio. "And they have been shameless about it."

Wolens estimates San Antonio loses as much as $2 million annually in missed tax revenue.

The San Antonio suit seeks taxes owed over several years and names 16 online agencies. Expedia Inc., also the parent company of Hotels.com; Travelocity, a unit of Sabre Holdings Corp.; and Priceline.com Inc. referred comments to industry spokesman Art Sackler. A spokesman for Orbitz, a unit of Cendant Corp., did not return calls.

Sackler, who is executive director of the Interactive Travel Services Association, said the governments misunderstand the role and responsibility of the companies and the laws governing the transactions.

The companies do not buy and resell rooms, he said. Rather, they negotiate a lower price based on the value of the service they then provide - creating a marketplace for consumers to find hotel rooms, he said. The markup is a service fee, he said.

So hotels are paying the appropriate taxes, and none should be collected from Internet companies, Sackler said.

Dallas and Houston officials say they could potentially join with San Antonio in the suit filed in federal district court in San Antonio. Or, they may file separate suits.

Texas, which charges a 6 percent bed tax, is auditing an online travel company, state deputy comptroller Billy Hamilton said. State policy requires him to keep the company's name confidential because of ongoing investigation, he said.

The same day San Antonio filed its lawsuit, a federal judge ruled that a Georgia class-action suit demanding "tens of millions" of dollars in unpaid hotel taxes could proceed.

If the courts compel the companies to pay the taxes in the future or pay past taxes, the agencies probably will pass the difference on to the consumer, said Michael Cannizaro, an analyst with travel-research firm PhoCusWright.

The cases could hinge on the companies' contracts with different hotels, he added.

Texas will seek those contracts in its audit, Hamilton said. If the state finds taxes unpaid, it will audit all the online travel companies and demand back taxes, he said.

The city of Houston promised to sue in April, but withdrew and entered talks with the online companies, said Frank Michel, spokesman for Mayor Bill White. Michel said a lawsuit remains a possibility and the city plans to decide on a course of action soon.

The Dallas city council will determine its next step after meetings with the city attorney later this month.

Dallas City Councilwoman Angela Hunt said unpaid hotel tax means that taxpayers shoulder more of the burden of running the city and its tourism efforts.

The Dallas Convention and Visitors Bureau, which receives a portion of bed tax revenue, estimates the city loses about $2 million a year.

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