Travel sites held to owe millions in transaction taxes to various jurisdictions.

• Author: Sullivan, John W., III

Expedia and other online travel companies (OTCs) could be forced to pay millions in uncollected taxes, penalties, and interest under recent state court rulings in Georgia and California, with other jurisdictions to possibly follow.

Georgia

The Supreme Court of Georgia recently ruled that Expedia cannot base the amount of hotel occupancy taxes that it pays to Columbus, Georgia, on the wholesale prices that it pays to the hotels. Instead, the court held, Expedia must pay the taxes based on the prices that its online customers pay at Expedia's website. In addition, because there is no way to distinguish the amount Expedia charges as a fee from the total charge for the room, the fee is also taxable. The entire room charge is taxable under the municipal ordinance at issue (Columbus GA City Code [section] 19-110 et seq.). The amount owed to Columbus will be determined by a trial court (Expedia Inc. v. City of Columbus, No. S09A0567 (Ga. 6/15/09)).

Up until 2008, when Expedia stopped doing business in Columbus, it typically negotiated wholesale prices with local lodging establishments and then charged customers a room rate of that amount plus a facilitation fee. Expedia paid the city's excise tax only on the wholesale rate and not the total amount paid by hotel guests.

Expedia argued that the U.S. Constitution's Commerce Clause barred taxation of the company because it was an out-of-state corporation lacking physical presence in Columbus. The court found that Expedia was acting as a collecting agent for Columbus hotel occupancy taxes, that it had contracted with Columbus hotels to collect the taxes, and that the taxes were actually imposed on the consumers.

The Georgia Supreme Court affirmed the trial court's order permanently enjoining Expedia to collect the taxes on the room rate and not the wholesale rate and ordered Expedia to disclose to consumers the room rate and any hotel occupancy taxes imposed instead of simply providing the room rate and the "taxes and service fees" bundled as a separate line item. In October, the court granted similar injunctive relief in another case involving substantially similar facts (Hotels.com v. City of Columbus, No. S09A0906 (Ga. 10/5/09)).

California

In February 2009, several OTCs were held to be liable to collect California local transient occupancy taxes calculated on the retail price paid by consumers for the rental of hotel rooms (Expedia Group v. City of Anaheim, Nos. 2008160-2008167 (Cal. Transient...