In yet another victory for online travel sites in nationwide litigation over hotel taxes, the U.S. Court of Appeals for the Sixth Circuit ruled online travel companies such as Hotels.com, Orbitz and Travelocity.com don’t have to pay local occupancy taxes to cities, townships and counties in Ohio.
Circuit Judge Boyce F. Martin Jr., writing for a three-judge panel, affirmed a series of rulings by U.S. District Judge David Katz in Toledo, who threw out the Ohio suit on summary judgment in November 2010.
The appellate court agreed with Katz on Monday that the online travel companies have no obligation to collect and remit taxes under any of the localities’ various guest tax laws. The panel also affirmed Katz’s finding the localities could still go after the online travel companies for taxes they collected but never remitted, but both courts concluded the localities hadn’t established that they’d been stiffed.
The ruling marks the second time the Sixth Circuit has rejected municipal challenges against the booking sites over taxes, after it previously affirmed a decision by a federal judge in Louisville, Kentucky. The U.S. Court of Appeals for the Fourth Circuit, meanwhile, has ruled for the online travel companies in a similar suit in North Carolina. The Third Circuit also dismissed a suit brought by New Jersey municipalities, although that case was dismissed for lack of standing rather than on the merits.
Overall, the vast majority of the decisions across the country so far have favored the online travel companies, though there have been exceptions.
“I would have been surprised if the Ohio decision had gone the other way,” said Jeffrey Rossman of McDermott, Will & Emery, the national counsel for Orbitz in the occupancy tax litigation. “This decision confirmed once again that online travel companies are not liable for local hotel occupancy taxes.”
As in many of the other decisions, the panel in the Ohio case found the online travel companies do not qualify as “vendors,” meaning owners or operators of hotels, and are therefore not covered by the relevant ordinances and regulations.
As of March about 70 suits had been filed by local municipalities in 25 states and the District of Columbia, seeking to reinterpret hotel occupancy tax ordinances to apply to amounts paid by consumers to online travel booking services, according to a May report from the Tax Foundation, a Washington-based nonpartisan tax research group.
But the online travel companies have so far prevailed in cases in 18 states, said the Tax Foundation’s vice president of legal and state projects, Joseph Henchman, who wrote the report.
The most notable case that went the other way was in Texas, where a San Antonio federal judge ruled last year that the companies were obligated to collect and pay hotel occupancy taxes. But Rossman and Joe Rubin, president and executive director of the Interactive Travel Services Association, noted no judgment has yet been entered in that case, and the Texas Court of Appeals in Houston has separately ruled the online companies are not liable for hotel taxes.
“The two courts have offered different interpretations of Texas state law,” said Rossman. “We’re watching this closely.”
Rubin said the online travel companies have seen significant victories over municipalities during the last six months in such states as Tennessee, Florida and Alabama. And in some areas, he said localities are calling into question the wisdom of spending money on these suits.
“It’s up to the plaintiffs to determine when the end is,” he said. “But we think that because of our victories there has been some reduction in the flow of these suits.”
Michael Gladman of Jones Day, who represented Hotels.com, Expedia Inc. and Hotwire Inc., argued the case for the online travel companies at the Sixth Circuit. McDermott, Will & Emery represents Orbitz LLC, Trip Network Inc. and Internetwork Publishing Corp.; Kelly Hart & Hallman represents Travelocity.com; and Skadden, Arps, Slate, Meagher & Flom represents Priceline.com Inc., Lowestfare.com Inc. and Travelweb LLC.
John T. Murray of Sandusky, Ohio-based Murray & Murray argued for Columbus, Dayton and other cities and townships. Murray did not respond to a request for comment by deadline.
In Florida, Broward County finalized a $400,000 settlement in May with major industry player Travelocity on hotel taxes. But Leon Circuit Judge Terry Lewis agreed with Expedia in June that Broward County wasn’t entitled to company documents exchanges with lobbyists and public relations firms to bolster its case.