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SALT Blawg – State and Local Tax Blog
State and Local Tax ("SALT") blog issues require state and local tax knowledge. Chamberlain Hrdlicka's SALT Blawg (SALT Blog) provides exactly that knowledge with news updates and commentary about state and local tax issues.
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The Alabama Supreme Court recently addressed the issue of whether online travel companies are liable for the payment of municipalities’ lodgings tax.SeeCity of Birmingham, et al. v. Orbitz, LLC, et al., Dkt. No. 1100874 (Ala. S. Ct. 2012).The appellants in the case were nine (9) Alabama municipalities and the appellees were sixteen (16) online travel service companies and related entities.
In their complaint, the municipalities alleged that municipal ordinances were enacted which imposed a lodgings tax on hotels located within their city limits; that the municipal lodgings tax is in addition to a State lodgings tax; and that the tax is calculated as a percentage of the amount charged by such hotels for the use of a room.
The online travel companies’ business model involves a customer making a room reservation through the online service, the customer is charged an amount for (1) the occupancy of the hotel room, (2) a lodgings tax recovery charge, and (3) an additional amount retained as compensation for the services. Thereafter, the online travel company is billed by the hotel based upon a contract between the on line travel company and the hotel for the right to offer reservation services to guests who would like to make a reservation at the hotel. The hotel bills the online travel company for the price of the room and the state and local tax thereon. The hotel then pays the lodgings taxes to the State and the appropriate municipality.
The municipalities alleged that the lodgings tax should be imposed not only upon the hotels for the amount they charge as rent for the occupancy of their hotel rooms, but additionally upon the amount that online travel companies charge the customer for their online services.
The Alabama Supreme Court disagreed with the municipalities and found forthe online travel companies. In so doing, it reasoned that the statute and ordinances were not ambiguous, and clearly imposed the lodgings tax upon every person, “engaging in the business of renting or furnishing any rooms, in any hotel.” The tax is fixed as a percentage of “the charge for such room…including the charge of use or rent of personal property and services furnished in such room.” Additionally, the court found that the DOR specifically promulgated a rule affirming that only persons who operate a hotel are persons who rent or furnish rooms. As such, the court found that the online travel companies do not operate a hotel in any of the municipalities and cannot be said to have engaged in the business of renting or furnishing rooms for purposes of the lodging tax.
Numerous cases have been brought in various states and jurisdictions throughout the country touching on the same or similar issues with varying results. For review of a similar holding by a different court, see our detailed posting regarding the Pennsylvania Commonwealth Court’s holding relating to Expedia and the Philadelphia Hotel Tax.