The Online Hotel Room Tax Battle Rages In Florida and Kentucky

Two federal courts recently (and only seemingly, I would contend) ruled on the side of online travel companies, producing somewhat surprising results in a long line of similar cases we followed throughout 2009 (see here, here, here, here, and here). 

One, a case brought to the U.S. District Court, Southern District of Florida, by Monroe County, Florida (Monroe County v. Priceline.Com, Inc., U.S. District Court, Southern District of Florida, No. 09-10004-MOORE/SIMONTON , December 17, 2009) and the other, a case brought to the U.S. Court of Appeals for the Sixth Circuit by two Kentucky counties (Louisville/Jefferson County Metro Government v. Hotels.com, LP, U.S. Court of Appeals for the Sixth Circuit, No. 08-6302/6303, December 22, 2009), call to mind that the e-commerce tax battle rages strong, in these cases having to do with online hotel bookings, with different results throughout the country and very few “bright line tests” to be able to predict the outcomes.

Monroe County brought its case on behalf of a certified class of Florida counties against Priceline.com, Expedia, Orbitz, and several others for failure to remit what is referred to there as “county tourist development taxes,” as well as resort taxes. The federal court granted the travel companies’ motion to dismiss the counties’ claim for permanent injunctive relief while denying the travel companies’ motion to dismiss other claims (i.e. the travel companies won this round) including, among others, that the ordinance imposing the tax was ambiguous and that the online travel companies were unjustly enriched by keeping tax receipts paid by consumers. In other words, the federal judge has left open the door for Monroe County (on behalf of other Florida counties) to go after the online travel companies.

What is the real verdict here, to my mind? It’s that the online companies absolutely cannot breathe easily yet vis-à-vis these Florida counties, not to mention they have the State’s Attorney General going after them, too. My bet? Florida, at both the state and county level, is going to kick some online travel company tax a$$ in the end.

* * * * * * * * * * * * * * * * * * * * * *

But I come to a very different conclusion regarding the situation in Kentucky, and therein we find a wonderful example of just how unsettled these issues remain throughout the country.

The U.S. Court of Appeals for the Sixth Circuit affirmed in late December a district court’s decision to dismiss claims by two counties that various online travel companies were in violation of ordinances imposing a transient room tax.

In a not unfamiliar story, the counties alleged that the online companies failed to pay tax on the difference between the retail rate paid by customers and the wholesale, lower rates paid by the online companies, an argument that (for example) the Florida Attorney General would say unjustly enriches the online travel companies.

But in a tricky and somewhat surprising (to me) opinion, the Sixth Circuit has ruled that the online companies’ lack of ownership and/or physical control over the rented hotel rooms makes them unlike “similar accommodations businesses” within the laws’ meaning of that term, drawing a line between brick-and-mortar hotels and online hotel room resellers. In another important ruling among several in this case, it said that the online companies lack physical presence.

Essentially, the Sixth Circuit is refraining from becoming activist on the online hotel sales tax issue and is pointing to the legislature to make any and all changes to enable the localities to get what they are looking for (in particular, tax on the higher retail rate of the room sales). 

Advertisement