Online travel companies owe millions of dollars in Arkansas taxes that they collected over the past 23 years, said Thomas P. Thrash, a Little Rock attorney.
Jefferson County Circuit Judge Robert H. Wyatt Jr. ruled Monday that Hotels.com and 11 other online travel companies are liable for the back taxes, and he's giving potential plaintiffs four months to intervene in the lawsuit and make a claim for damages.
"It is like a bird nest on the ground," Thrash said. "The liability has been determined. The state, cities, counties and A&P commissions just need to file their claim and get paid."
The lawsuit 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, but taxing entities must file a motion to intervene in the lawsuit and make a claim for damages before they can collect any money.
Thrash said there are more than 40 advertising and promotion commissions in the state, and the lawsuit would likely affect all 75 counties.
"Any city with a Holiday Inn or other chain -- Comfort Inn, Motel 6, etc. -- would have online bookings," he said. "Most all counties would be included."
But Mike Maloney, executive director of the City Advertising and Promotion Commission in Eureka Springs, said calculating lost revenue over 23 years -- or a fraction thereof -- could be quite a chore.
"We have so many lodging properties -- 130, 135, I don't know what the exact number is," Maloney said. "To go back 23 years and pull whatever documentation out is going to be an issue. ... It would be a huge amount of money."
Claude Legris, president of the Arkansas Association of Convention and Visitors Bureaus, agreed.
"I venture it will be extremely difficult to do the look-back on it," said Legris, who is also executive director of the Fort Smith Advertising and Promotions Commission. "It could be quite a daunting task for the individual destinations."
Thrash said the cities, counties, and advertising and promotion commissions don't have to do that legwork.
"They do not have to do anything to determine their damages," he said. "They just have to claim they didn't receive taxes from the online travel companies. The court has ordered the online travel companies to provide the damage data within 30 days after [the taxing entities] make a claim."
They just have to make a general claim, Thrash said.
Wyatt had informed the parties of his decision in a Feb. 1 letter. His official order was filed Monday, giving potential plaintiffs four months to intervene and existing plaintiffs 30 days to petition for "supplemental relief of damages."
Thrash said he believes the damages can be calculated back to 1995.
To explain how the tax revenue was diverted, 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 kept 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.
According to Wyatt's opinion filed Monday, under Arkansas law, the travel companies' "fees" are also part of the tax base because they are "necessary to complete the sale."
"The [online travel companies'] admitted business practice of bundling their fees with the net rate price of the room and in the 'taxes and fees' line item is improper and conceals the true tax amount from the customer and the taxing authority," according to the court filing. "This practice alone renders the OTCs liable for the taxes on the total amount collected from the customer, as exemptions or deductions from the taxable amount are only given for items that are separately stated."
Paul Gehring, assistant revenue commissioner for the Arkansas Department of Finance and Administration, said they were still reviewing the court documents Tuesday. The state has yet to intervene in the case, initially taking the view that the online travel companies weren't "subject to gross receipts and tourism tax levied on the service of furnishing rooms to transient guests," according to an April 19, 2017, opinion letter from the department.
"We have not yet made any decision as to further steps that may be taken," Gehring said. "When there's a ruling in a court case, we take a very close look at what the ruling says before we make a decision going forward."
Jeffrey A. Rossman, a Chicago attorney representing Hotels.com, Hotwire and Expedia, didn't return a voice mail message Tuesday.
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.
NW News on 05/20/2018