Pay up, judge tells online travel firms; Arkansas cities, counties due taxes

Posted: February 3, 2018 at 4:30 a.m.
Updated: February 5, 2018 at 4:30 a.m.

A judge has ruled that Hotels.com and other online travel companies must remit taxes they collect for Arkansas lodging to the appropriate cities, counties, and advertising and promotion commissions that levied the taxes.

Jefferson County Circuit Judge Robert H. Wyatt Jr. granted a motion for summary judgment Thursday on behalf of plaintiffs in the case, which was filed in 2009.

The initial plaintiffs were the Pine Bluff Advertising and Promotion Commission and Jefferson County. North Little Rock was added as a plaintiff in 2011.

The case was granted class-action status in 2013, meaning the plaintiffs represent every city, county and advertising and promotion commission in Arkansas, said Thomas P. Thrash, a Little Rock attorney who represents the plaintiffs.

Thrash said online travel companies have been collecting the hotel taxes in Arkansas since at least 2000 but they haven't been remitting all the taxes.

If the court determines there is liability, plaintiffs could be reimbursed for the diverted tax revenue for the past six years, he said.

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"We don't know how much it is, but we think it should be worth everybody's while," Thrash said.

According to a 2011 court filing, the total amount being sought was less than $5 million, and the individual claims by the three plaintiffs came to less than $75,000 each.

To determine damages, Wyatt appointed a mediator in the case: James W. Tilley of Watts, Donovan & Tilley of Little Rock.

Jeffrey A. Rossman, a Chicago attorney representing Hotels.com, Hotwire and Expedia, said Friday that he didn't have any comment at this time.

As an example, Thrash said Hotels.com might sell a hotel room through its website for $100 but it agreed to pay the hotel company $50 for that room. The consumer pays the appropriate Arkansas taxes on the $100 room, and half of the collected taxes go to the hotel company along with $50 for the room. The hotel company then remits the taxes on the $50 it received for the room.

But Hotels.com hasn't been paying the taxes on the $50 it made on that room, even though it collected taxes on that $50 from the consumer, Thrash said.

In essence, he said, the online booking companies have been keeping tax revenue that belongs to Arkansas cities, counties, and advertising and promotion commissions.

"They're saying they don't really sell the room; they just facilitate the room," Thrash said.

Wyatt didn't buy it.

"Based on the Arkansas Code and the facts as presented, the court adopts the reasoning put forth by the plaintiffs in their motion," Wyatt wrote in his email to lawyers in the case.

Wyatt also took issue with an April 19 opinion letter from the Arkansas Department of Finance and Administration that stated that online travel companies weren't "subject to gross receipts and tourism tax levied on the service of furnishing rooms to transient guests."

Wyatt wrote on Thursday that the department's opinion "is clearly incorrect because it is based on incomplete facts."

Thrash said some of the filings in the case are under seal, including the motions for summary judgment.

Twelve defendants were named in the lawsuit.

The Pine Bluff Advertising and Promotion Commission imposes a 3 percent tax on gross receipts from the rental of accommodations, according to the suit. Jefferson County and North Little Rock each impose a 1 percent tax.

Arkansas also has a 6.5 percent sales tax and a 2 percent hotel tax, according to the National Conference of State Legislatures.

According to the lawsuit, several defendants, including Priceline.com, Expedia, Orbitz and Hotels.com, state in their filings with the Securities and Exchange Commission that they keep the taxes paid on their "services."

According to Hotels.com's 2003 annual report, "Some tax authorities may assert that in some circumstances we should collect and remit such taxes on that part of the charge to customers that serves as compensation to us for booking services. We have not paid or agreed to pay such taxes and intend to defend our position vigorously."

Metro on 02/03/2018