Bloomberg BNA: Online Travel Companies Must Collect Colorado Lodging Taxes
Michael J. Bologna on April 27, 2017
Expedia Inc., Orbitz LLC, Priceline.com Inc. and Travelocity.com LLC could be stung for at least $7.5 million of lodging taxes and penalties owed to Denver under a ruling by the Colorado Supreme Court ( Denver v. Expedia Inc. , 2017 BL 133139, Colo., No. 2017 CO 32, 4/24/17 ).
A divided Colorado high court ruled April 24 the online travel companies (OTCs) have an obligation to collect and remit taxes calculated against the higher retail rate paid by consumers for hotel rooms, rather than the discounted wholesale rate negotiated between OTCs and hotels. The OTCs had asserted, as they have in almost 100 courtrooms across the country, that they weren’t obligated to collect Denver’s lodging tax on the markup—the difference between the retail rate and the wholesale rate.
The court acknowledged some ambiguity in the drafting of the tax ordinance, particularly on the question of whether the OTCs should be considered “vendors” with a duty to collect Denver’s 10.75 percent lodging tax. But using “interpretive aids” as part of its analysis, the 4-3 majority found any plain understanding of the full ordinance and the intent of the Denver City Council establishes a duty by the OTCs to collect and remit tax on the markup.
“When the related provisions and interlocking definitions of the lodger’s tax article are considered as a harmonious whole, the conclusion that the OTC’s markup must be included in the purchase price paid or charged for lodging is not only one reasonable construction of the article; it is sufficiently apparent that it is the fair and reasonable construction embodying the legislative intent,” Justice Nathan Coats wrote on behalf of the majority.
In a concurring opinion, Justice William W. Hood found no ambiguity as to an OTC’s role and duty as a vendor. In this regard, he said the majority’s expansive interpretation was unnecessary.
“Because I believe the ordinance to be unambiguous in requiring this result, I do not see a need to resort to the use of interpretive aids,” Hood wrote.
The Colorado high court’s ruling was a rare, but significant, win for state and local units of government hoping to collect on purportedly unpaid lodging tax liabilities. The OTCs have generally prevailed in the dozens of actions filed in state and federal courts across the country.
Huge Revenue Implications
A spokeswoman for Denver Mayor Michael Hancock (D) applauded the court’s decision.
“Today we saw the right outcome of arduous work by the city to ensure that tourism dollars are being invested right back into our community,” press secretary Amber Miller told Bloomberg BNA in an email.
Denver assistant city attorney Charles Solomon said the ruling would have huge revenue implications for the city.
Solomon said the original assessment against the OTCs sought $40 million for unpaid taxes and penalties for a 10-year period through April 2010. That number was trimmed to $7.5 million under a district court ruling that limited the liability period to 2007 through 2010.
Solomon noted, however, the OTCs’ final bill could be two or three times higher as liabilities for the last seven years are assessed. In addition, the appeals court, at the direction of the Supreme Court, could modify the assessed penalties and interest for the 2007-10 period.
“We have not assessed from 2010 up to the present,” Solomon told Bloomberg BNA. “We had agreed with the online travel companies to hold that period in abeyance until we got a decision from the Colorado Supreme Court. We will now be issuing assessments from 2010 to the present—on top of the $7.5 million.”
Solomon noted the decision also could have implications for other towns and counties across the state. There is at least one active case involving the Rocky Mountain resort community of Breckenridge, Colo.
Sam Mamet, executive director of the Colorado Municipal League, said the ruling would give some courage to ski towns and other resort communities considering litigation to capture unpaid hotel occupancy taxes.
“I think the majority opinion is pretty explicit,” Mamet said. “I’m not a guy that gloats, but we are certainly pleased. This certainly adds a bit more clarity than we had before.”
A spokesperson for Expedia declined comment on the ruling. In addition to Expedia, Orbitz, Travelocity and Priceline, the lawsuit targeted Hotels.com L.P., Hotwire.com Inc., Site59.com LLC, Travel Webb LLC and Trip Network Inc. as defendants.
Higher Rates for Travelers?
The Travel Technology Association, a trade organization representing the online travel industry, expressed disappointment with the ruling.
“Taxing online travel agents is bad for the travel and tourism economy,” Stephen Shur, Travel Tech’s president, told Bloomberg BNA. “Like all taxes, this will ultimately be passed on to the consumer—in this case, in the form of higher rates.”
According to a 2016 report by the Washington-based Tax Foundation, at least 92 lawsuits have been filed against the OTCs by state and local units of government over tax collection duties. The lawsuits were filed in 34 states, the District of Columbia and Puerto Rico.
Of that total, the Tax Foundation said courts in 39 of the cases in 23 states concluded that the services provided by the OTCs aren’t taxable under the applicable state or local lodging tax statutes. However, courts in 10 cases in six states and the District of Columbia have ruled the services provided by OTCs are taxable under state and local lodging tax statutes.
No decisions on the merits have occurred in 14 cases in 12 states. Most of the remaining cases were either voluntarily dismissed, dismissed on procedural grounds or settled.