Online travel sites owe millions in back taxes

24 Jun

Online travel sites owe millions in back taxes

Online travel agencies like Expedia and Priceline could owe Illinois as much as $150 million in back taxes, a Chicago judge ruled on Friday.

At issue is whether the defendants—including Expedia, Orbitz, Priceline, Travelocity, Hotels.com, Hotwire, and Cheap Tickets—ought to pay hotel occupancy tax on the wholesale price they pay to hotels, or on the retail price they collect from customers.

A Chicago judge ruled against the sites on Friday, saying they must pay the 4.5% hotel occupancy tax on the full retail of hotel rooms they booked in the Windy City.

With more suits already filed by surrounding municipalities, the difference could add up to as much as $150 million in the state of Illinois alone, said a lawyer involved in the case.

And other states are looking at those taxes, too. The online agencies in March agreed to pay $55 million in back taxes to the state of Texas following a similar lawsuit (see TravelMole story, http://www.travelmole.com/news_feature.php?news_id=2005599&c=setreg®ion=3&cat=7).

Online travel companies have argued the difference between the wholesale and retail prices is a fee for their services and not for lodging, and therefore is not subject to the city’s 4.5% hotel-occupancy taxes.

But the judge said in his ruling that it would be “absurd” to find that online travel agencies do not rent rooms to the public.

Noting that it brings millions of customers to Chicago each month, Chicago-based Orbitz Worldwide said it is “disappointed that the city even pursued this case” and “will be exploring our options for appeal.”

The Travel Technology Association said that “quite simply, we feel that today’s ruling by the Cook County Circuit Court is incorrect,” as travel agencies don’t greet guests, change sheets and towels, or maintain hotel buildings.

“This case serves as an outlier,” that likely will “significantly reduce demand for Chicago vacations, conventions and meetings,” as “most courts nationwide have ruled decisively in favor of (online travel companies),” TTA said.

By Cheryl RosenMonday, June 24, 2013

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