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In filing a lawsuit alleging that 17 online travel brokers have consistently failed to remit proper amounts of taxes when booking local hotel rooms for users, the city of Philadelphia isn’t going where no municipality has gone before, but it’s not exactly heading into well-charted waters, either. This winter, Los Angeles initiated a similar action in a California state court. That suit names as defendants, among others, Expedia, Orbitz and Travelocity — all of which were also named in City of Philadelphia v. Hotels.com. Also included as defendants in the Philadelphia suit, which was filed in Common Pleas court, are Priceline and Hotwire. That millions of dollars are at stake in the matter is clear. Whether the city’s complaint implicates well-established case precedent and statutes or the still-emerging laws of e-commerce remains to be seen. But lawyers involved in the matter on the city’s behalf argue that it is a straightforward tax case. Michael Fantini of Berger & Montague — who is assisting the city’s lead outside counsel Sherrie Savett in the case — said the basis for the city’s complaint is simple. Say a tourist pays $100 for a room at a Philadelphia hotel. Under Philadelphia’s Hotel Room Rental Tax, he or she will also have to pay a 7 percent tax that the hotel later remits to the city, according to Fantini. But when the tourist uses one of the travel Web sites, he or she is usually booking one of the many rooms that the dot-com has previously rented at reduced rates. The tourist uses the Web site to book a room at roughly the same price as would be paid in person, but the dot-com remits taxes to the hotel according to the bulk rates, the city asserts in its complaint, which was filed by Savett and Fantini earlier this month. “I think it’s clear from the Philadelphia Municipal Code itself that the taxes are owed on the full amount of consideration received,” Fantini said. “The code itself is our main authority for this action.” � 2402 of Chapter 19 of the Philadelphia Municipal Code, which addresses the Hotel Room Rental Tax, states only that “the tax shall be collected by the operator from the patron of the room and paid over to the city.” Dot-com spokespeople publicly denied any wrongdoing in the wake of the filing of the Los Angeles lawsuit. No attorneys have yet entered appearances on behalf of the defendants in the Philadelphia suit. Several leading attorneys in tax and Internet law contacted by The Legal declined to comment on the case, citing lawyer-client relationships with one or more of the 17 defendants or related entities. Donald Marino, who heads the city law department’s litigation unit, said the city first got the idea to sue the dot-coms when it was approached by Berger & Montague. “We were made aware of the possibility by the law firm; I spoke with Sherrie Savett,” Marino said. “From the city’s standpoint, if in fact [the Berger & Montague attorneys] are correct in their suppositions, there is the potential here to reap tax money which we should have been receiving and to which we are entitled,” he added later. Marino noted that due to the fact that the city has set up a contingency fee arrangement with Berger & Montague in conjunction with Hotels.com, the action is “cost-neutral” from the city’s perspective. Marino wouldn’t discuss the specifics of the law firm’s contingency fee, but City Solicitor Romulo L. Diaz Jr. has told other news outlets that Berger & Montague would receive 30 percent of whatever is awarded to the city. Marino said that before the decision was made to go forward with the lawsuit proposed by Berger & Montague, city officials determined that going after the dot-coms wouldn’t do harm to the local hospitality industry. Joe Mahoney, executive vice president at the Greater Philadelphia Chamber of Commerce, said his group has reached the same conclusion. “I think that the positive tourist and business attractions of Philadelphia stand on their own and that this a question of fairness and of remitting what you’re owed,” Mahoney said of the city’s lawsuit. Savett said discovery in the matter is expected to get under way shortly. “I believe that millions of dollars are at stake, both in taxes that should have been paid and in what the city would lose in the future if the practice isn’t changed.”

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