Hotel tax lawsuit

The city of San Antonio is suing online travel brokers, claiming that they are insufficiently paying its hotel occupancy tax.

Dallas-based Hotels.com and Travelweb and Southlake-based Travelocity.com, a subsidiary of Sabre Holdings Corp. (NYSE: TSG), were among 19 firms that allegedly underpaid hotel occupancy taxes in violation of state and local tax laws, according to a press release from the city of San Antonio.

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The suit was filed in federal district court in San Antonio Monday morning, said Steve Wolens, of the Dallas office of Baron & Budd P.C., who is working with the city of San Antonio.

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Art Sackler, the spokesman for Interactive Travel Service Association, the group that represents online travel sites, said the suit is misdirected.

"The law applies to hotel operators," Sackler said. "The online travel companies are not hotel operators."

Many large Texas cities like San Antonio rely on hotel occupancy taxes that come directly from local convention and tourism industries, according to a release from the city of San Antonio. For example, there are more than 33,000 hotel rooms in Dallas that generate millions of dollars in taxes for the city each year. It is estimated that Dallas loses $1 million to $1.6 million every year in unpaid hotel occupancy taxes.

Wolens said that while the suit has been filed on behalf of all cities in Texas, it's possible the city might join the suit later. The city of Dallas' attorney couldn't immediately be reached for comment today.

As Dallas Blog puts it, sites like Travelocity book a boatload of rooms at a fixed discount price, say $75 a night for a room that would normally go for $150, then resell them in between, say at $125. They pay taxes based on the $75 price. Their customer doesn't pay the tax, since they don't do business directly with the hotel. The city claims that the broker should pay the tax based on the $125 price that the customer pays.

I'm not a lawyer, but my guess is that the city will lose this suit. This sounds like a legitimate loophole in the law to me. I think San Antonio's hotel occupancy tax - and that of other cities that may decide they have an interest in this - will have to be revisited to pick up this slack. I could certainly be wrong about this. I'll be curious to see how the suit progresses.

Cities are not the only ones with a stake in this:

In addition to the lost tax revenue at the city level, the State of Texas also is losing out as a result of the improper remittance of hotel occupancy taxes, the news release said.

I'm moderately surprised no one introduced a bill this session to close that loophole. Everybody loves a tax that is mostly paid by other people, after all. I won't be at all surprised if this does come up in a future session.

UPDATE: I missed the fact that Houston has contemplated taking this action, though nothing has come of it as yet. blogHouston has the details.

Posted by Charles Kuffner on May 10, 2006 to Legal matters | TrackBack