Sunset falls over the Florida Supreme Court building
Sunset falls over the Florida Supreme Court building (Phil Sears)

If the Florida Supreme Court rules counties can tax online travel reservation companies, the decision would go against legislative intent as well as lower courts.

In the give-and-take at arguments on the tax issue, the justices gave the impression they were generally dubious of the legitimacy of the counties’ arguments in favor of taxes.

The counties claim $21 million a year in tax collections is at stake. They also warned at Wednesday’s hearing that hotel owners would be emboldened to create a loophole that could push lost tax revenue to as much as $51 million annually. To claim that amount, the counties would have the court believe there is no difference between taxing a hotel and taxing a tourist.

Eighteen counties exercise a local option established in 1977 that taxes hotels. At present, counties may collect taxes only on the amount online travel companies remit to hotels, not the service charge retained by the online companies for their room rentals.

The online retailers claim the tax burden is on hotels, and the counties are trying to broaden that burden to tourists in a money grab.

Gary Cruciani of McKool Smith in Dallas, representing the counties, insisted the distinction is a “big red herring.” What matters is the total price paid for a room.

Repeatedly, the justices butted heads with the counties’ attorneys over the logic of a system that would require online companies to pay a tax based on their service in addition to the county-level tourist development tax paid on hotel rentals.

“I’m still trying to understand how under the statute in the business of renting hotel rooms this gets switched to somebody who’s providing additional services,” Justice Barbara Pariente told Cruciani. “Why the county’s able to get that money from the online company who’s in another state.”

Mary G. Jolley of Volusia County and Roberto Martinez of Colson Hicks Eidson in Coral Gables also represented the counties.

Turning it into an arithmetic problem, Chief Justice Ricky Polston offered a hypothetical situation where a tourist pays $100 for a room, but there is an additional travel agent’s fee of $20.

“There’s not a separate fee,” Cruciani said, continuing his argument that all costs are bundled and the only number that matters is the total.

“I understand,” Polston said. “Hypothetically, hypothetically … would there be a tax paid on the $100 or the $120?”

Cruciani said the entire amount would be taxed.

“To me, the rental is for the room, the $100 and the additional $20 is a travel agency fee,” Polston said.

Service Tax

Answering for Expedia, Hotels.com and seven other international online travel reservation companies was Darrel J. Hieber of Skadden, Arps, Slate, Meagher & Flom in Los Angeles.

The online travel companies were granted summary judgment in trial court, and that decision was upheld by the First District Court of Appeal. The court held only hotels are liable for the tax.

Expedia and its Internet brethren don’t own rooms or maintain access to blocks of rooms, Hieber said. He argued the counties’ legal interpretation is so far afield that they would have to revamp their ordinances because county laws only address auditing, assessment and enforcement of dealers, which are the hotel owners.

Stacks of friend-of-the-court briefs were filed by counties, the Florida Association of Destination Marketing Organizations and the America Hotel and Lodging Association, all favoring a tax on travel websites.

On the other side, briefs were submitted by the Florida Chamber of Commerce and the American Society of Travel Agents.

In the chamber’s brief, Stephen Grimes of Holland & Knight in Tallahassee emphasized the Legislature is well aware of the litigation. Since 2005, 19 bills have been introduced on both sides of the issue, and none passed.

“Florida has a longstanding aversion to imposing sales taxes on service providers,” Grimes stated. “This court will remember when in 1987 the Legislature imposed the sales and use tax on a broad spectrum of service transactions. The public clamor against this ‘services tax’ was so great that it was repealed within a year.”

Following that reasoning, Hieber noted the state has a longstanding policy of imposing taxes only by clear and unequivocal language.

“Florida law does not clearly and unequivocally impose tax on the online travel companies,” he said.