Back in 2006, the city of San Antonio filed a lawsuit against online hotel bookers, claiming that they were paying an insufficient amount of hotel taxes. Basically, sites like Travelocity book a boatload of rooms at a fixed discount price, say $75 a night for a room that would normally go for $150, then resell them in between, say at $125. They pay taxes based on the $75 price. Their customer doesn't pay the tax, since they don't do business directly with the hotel. The city claims that the broker should pay the tax based on the $125 price that the customer pays.
In 2007, the city of Houston filed a similar suit. Now the original suit has been given class-action status, though for now Houston will continue to pursue its own claim.
On Tuesday, a federal judge granted San Antonio's motion for class-action certification in its lawsuit against 16 companies, including Hotels.com, Expedia.com, Priceline.com and Orbitz. The San Antonio suit, like Houston's, claims the online companies collect the hotel tax at the retail rate but only pay taxes on the bulk wholesale rate that they are charged. Galveston will not seek inclusion in the San Antonio suit, a city official there said Thursday.The companies argue they do not control occupancy and only provide a service for consumers and should not have to pay the difference.
The suit, they argue, could wind up hurting tourism.
"It just doesn't make sense that increasing the costs of travel won't decrease the amount of travel," said Paul Chronis, Orbitz's lawyer. "That's pretty basic stuff."
Randy Pourteau, a senior assistant city attorney for the city of Houston, disputed the claim. He said the rates the online companies charge would not have to be raised. The issue pertains to the smaller amount in taxes the companies are paying local governments.