A District of Columbia Superior Court judge handed a win to city officials today, finding in D.C.'s favor in a lawsuit against online travel companies accused of not paying enough local taxes.
The city sued seven online travel companies, including Expedia Inc., Orbitz LLC and other major sites, in March 2011, accusing them of failing to pay the proper amount of taxes on hotel rooms sold in the District. The city claimed that the companies were unlawfully paying taxes based on discount rates they negotiated with hotels, instead of the higher rates they charged consumers.
In today's order (PDF), Judge Craig Iscoe found that because consumers pay for the rooms through the online travel companies, those companies should be considered the vendor under D.C. law and the full amount paid for a room should be taxable.
City officials have said that the companies owe tens of millions of dollars in unpaid taxes and penalties. "The Court's ruling today is an important step in our efforts to ensure that the District receives the substantial sums it is owed by online companies selling hotel rooms in D.C.," D.C. Attorney General Irvin Nathan said in a statement.
Counsel for the companies declined to comment or could not be reached this afternoon. Williams & Connolly is representing the defendants as a group; Travelocity.com LP is being represented by Kelly Hart & Hallman in Fort Worth, Texas; Orbitz LLC is being represented by McDermott Will & Emery; Priceline.com Inc., is being represented by Skadden, Arps, Slate, Meagher & Flom; and Expedia Inc., Hotels.com LP, Hotwire Inc., and Travelscape LLC are being represented by Jones Day.
Besides granting summary judgment on the District's claim for failure to pay taxes, Iscoe found that the online travel companies failed to file the proper tax returns. The companies argued that it was the hotels' responsibility to file those returns, but Iscoe found that the responsibility lay with them. However, he denied the city's motion for summary judgment on its claim for penalties for negligence, finding that the issue wasn’t clear enough at this stage.
Iscoe also left unresolved the issue of whether Orbitz Worldwide Inc., a parent company of Orbitz LLC, and Expedia Inc., in Delaware, a parent company of Expedia Inc.'s Washington-based office, should be considered online travel companies. He denied those companies' motions for summary judgment.
The Interactive Travel Services Association, a trade group representing several companies involved in the case, issued a statement this afternoon calling the decision "incorrect." In an email, group president Joseph Rubin noted that courts in other jurisdictions had granted online travel companies summary judgment in similar litigation.
"Each company will make its own decision about appealing. But an appeal should not be surprising, and we expect the [online travel companies] will prevail if there is an appeal," Rubin said.