WASHINGTON, D.C. -- Online travel companies and the travel and tourism industry are celebrating a victory for consumers and travelers. Within the last two weeks, the Kentucky Supreme Court, a U.S. District Court in Tennessee and a state appeals court in Pennsylvania have all affirmed that local jurisdictions in Kentucky, Tennessee and Philadelphia cannot impose taxes on online travel companies (OTCs) for their reservation services under existing hotel occupancy tax ordinances. These decisions follow a clear national trend, where state and federal courts have rebuffed efforts by state and local governments to attempt to impose hotel occupancy taxes on online travel companies for their services.
"We are pleased that these three courts have properly interpreted the law, and correctly concluded that online travel companies do not operate hotels or underpay taxes," said Joseph Rubin, President of the Interactive Travel Services Association (ITSA), the voice for the online travel companies and the companies that power the travel industry.
ITSA, www.interactivetravel.org, is an association for online travel companies and global distribution systems. It is the voice of the industry on public policy matters, and on educating policy makers, opinion leaders and the traveling public about the industry and matters of importance that will affect travel and tourism in general.
ITSA's members include: Amadeus (Madrid Stock Exchange: AMS.MC), Orbitz Worldwide (NYSE: OWW), Expedia (Nasdaq: EXPE), Priceline (Nasdaq: PCLN), Sabre Holdings, Travelport and Vegas.com.
"We hope other municipalities will recognize this clear trend, and will read these thorough, well reasoned opinions," said Rubin. "As demonstrated by these strong opinions, there is little basis for the litigation that some states and localities have pursued that ends up simply wasting taxpayer resources."
In the Tennessee case, the court granted summary judgment on the merits for the online travel companies against a class action brought by 73 counties and 56 municipalities. The Tennessee case is particularly instructive because the judge in this case had denied a motion to dismiss by the OTCs in an earlier decision, which was based solely on the pleadings of the plaintiffs. However, once the judge had the benefit of examining actual evidence about the actual practices of the OTCs, as opposed to the basic allegations of the counties, she dismissed the case.
Ultimately, the Tennessee court found that the controlling statutory language at issue imposes the tax on "the operator" of a hotel, defined as a "person operating the hotel." Although this concept appears fairly simple, the opinion is notable for the care in which it describes what OTCs do, and how it discusses and dismisses claims that OTCs "operate" hotels.
In the Pennsylvania case as well, a unanimous court found that the online travel companies do not "operate" hotels, and that they are not therefore liable for a tax on their services.
The Kentucky Supreme Court denied a motion to rehear the finding of the state Court of Appeals, so the Court of Appeal's ruling dismissing the case stands.
"Given the wide diversity of courts, localities and statutes relied on by the courts to repeatedly strike these cases down," Rubin said, "we urge local jurisdictions that are exploring these cases to do their own, independent research on the viability of these actions, which will show how precarious these cases really are."
Source: Interactive Travel Services Association
