Online Travel Agencies Win Ruling on Florida Hotel Taxes

Expedia Inc. (EXPE) and other online travel agencies should be taxed on what they pay for hotel rooms, not for what they charge customers for those accommodations, a Florida state appeals court ruled.

In a 2-1 decision upholding a lower-court ruling, the Florida First District Court of Appeal in Tallahassee said yesterday that the Tourist Development Act doesn’t apply to what a company collects from customers who reserve rooms online.

The companies “are simply conduits through which consumers can compare hotels and rates and book a reservation at the chosen hotel,” the court ruled.

The underlying lawsuit, filed in Leon County Circuit Court by 17 Florida counties, sought a declaratory statement that the so-called bed tax applied to online travel agencies such as Expedia, Orbitz Worldwide Inc. (OWW), Priceline.com Inc. and Sabre Holdings Corp.’s Travelocity.

The counties argue that the companies should be taxed on the markup fees they collect. The online companies contend the markups are not fees associated with lodging costs. The lower court found in April that the law was ambiguous and ruled that the taxes didn’t apply to the companies.

“As the trial court here correctly determined, it is for the Legislature, and not the judiciary to decide whether to apply the tax to the full amount that the companies charge their customers,” Appeals Court Judge Bradford Thomas wrote in yesterday’s decision.

‘Artificially Reduced’

In dissent, Judge Philip Padovano wrote that the bed tax should be paid on the entire amount a tourist pays to stay in a hotel room.

“That amount cannot be artificially reduced by setting a wholesale rate for the room and then treating the difference on the funds retained by an online travel company as if it is not part of the money the tourist has paid to stay in the room,” he wrote.

Fort Lauderdale attorney Edward A. Dion, a lawyer for the counties, said they were examining their options, including asking the appeals court to rehear the case or petitioning the Florida Supreme Court to consider the issue.

Mark Holcomb of Madsen Goldman & Holcomb LLP, an attorney for Bellevue, Washington-based Expedia, declined to comment on the ruling.

The Travel Technology Association, whose members include Expedia, Orbitz, Priceline (PCLN) and Travelocity, said in a statement that the ruling “follows a trend” of state and federal courts rebuffing efforts to levy hotel occupancy taxes on the companies.

The case is Alachua County v. Expedia Inc., 1D12-2421, Florida First District Court of Appeal (Tallahassee).

To contact the reporter on this story: Christine Sexton in Tallahassee, Florida, at christinesextonwork@hotmail.com

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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