Baltimore City to sue online sites for hotel tax

BRENDAN KEARNEY
Daily Record Legal Affairs Writer
December 9, 2008 9:25 AM
The city of Baltimore is expected to file suit this morning against several hotel-booking Web sites it believes should be subject to the tax that only brick-and-mortar hotels pay now.

The suit, more than a year in the making, will ask a judge to declare that firms such as Expedia, Orbitz, Travelocity and hotels.com must pay the same 7.5 percent tax on rooms they book as the hotels on whose behalf they solicit reservations.

Mayor Sheila Dixon will announce the Baltimore City Circuit Court filing along with “other significant affirmative litigation items” at a press conference Wednesday morning, according to City Solicitor George A. Nilson. He declined to elaborate on the other matters.

With the suit, Baltimore joins a trend among municipalities around the country in pursuing the companies, whose collective tax obligation to Baltimore is an estimated $1.5 million per year, according to city attorneys.

“The city has contacted these companies and requested that they pay the tax, and they’ve declined. So this is what we need to do,” said Matthew W. Nayden, a chief city solicitor.

The city has partnered on the suit with attorneys at Lamar, Archer & Cofrin LLP, an Atlanta firm that also represents cities and towns in Georgia and California. Nilson said Baltimore County had been looking into filing similar litigation, but County Attorney John E. Beverungen did not return a call for comment Tuesday afternoon.

As for how much the city’s lawsuit, which will also seek back taxes, may eventually be worth if successful, Nayden said he can only estimate “because we haven’t seen their books and records.”

“They have worked hard to keep information about their operations confidential and out of the public eye, which produces some obstacles for trying to investigate or audit the issue,” he said.

If victorious, the city would be able to go back at least four years in collecting back taxes, Nayden said. If the city can prove the e-booking firms knowingly and willfully refused to pay the tax, Nilson said the city could collect taxes as far back as six or seven years.

Calls to Expedia, Orbitz, and hotels.com were not returned Tuesday evening. A spokeswoman for Travelocity referred calls to the Interactive Travel Services Association, a trade group that represents the defendants.

ITSA Executive Director Art Sackler could not be reached for comment Tuesday; in previous statements on the topic, he has said such suits take a “ready-shoot-aim approach” and are “ill-conceived” by plaintiffs’ class-action attorneys.

Tax on the travel

The Web booking firms negotiate rates with hotel operators and add a percentage for their own profit. They argue that only what the consumer pays the hotel is subject to the hotel tax.

Thus, if a person buys a night at a downtown Baltimore hotel online, most of which goes to the hotel and some fraction to the booking firm, no tax has been levied on the online travel company’s piece.

Nilson said the state tax on hotel occupancy, which each local jurisdiction imposes at various rates and pockets for municipal use, has always applied to e-booking companies, and that a September 2007 amendment to the relevant Baltimore ordinance should have removed any doubt.

But over the past year, Nilson said, he has kept an eye on the progress of a “couple of dozen” similar lawsuits around the country — including Georgia, Texas, California and Illinois — tracking the defendants’ arguments and the rulings so far.

While municipalities have had their suits dismissed for lack of jurisdiction or whittled down, Nilson doesn’t view any of these results as definitive.

“The litigation over this issue has not matured in that most of the decisions so far have been on preliminary issues,” Nilson said. “Baltimore has been watching those cases to see how they’re progressing and we’ve made a judgment that we’re right on the merits.”

“We decided now is the right time to get into the fray.”