Travel Sites Held to Owe Millions in Transaction Taxes to Various Jurisdictions

By John W. Sullivan III, Esq., Friedman LLP, New York, NY (not affiliated with CPAmerica International)

Editor: Michael D. Koppel, CPA, PFS

Expedia and other online travel companies (OTCs) could be forced to pay millions in uncollected taxes, penalties, and interest under recent state court rulings in Georgia and California, with other jurisdictions to possibly follow.


The Supreme Court of Georgia recently ruled that Expedia cannot base the amount of hotel occupancy taxes that it pays to Columbus, Georgia, on the wholesale prices that it pays to the hotels. Instead, the court held, Expedia must pay the taxes based on the prices that its online customers pay at Expedia’s website. In addition, because there is no way to distinguish the amount Expedia charges as a fee from the total charge for the room, the fee is also taxable. The entire room charge is taxable under the municipal ordinance at issue (Columbus GA City Code §19-110 et seq.). The amount owed to Columbus will be determined by a trial court (Expedia Inc. v. City of Columbus, No. S09A0567 (Ga. 6/15/09)).

Up until 2008, when Expedia stopped doing business in Columbus, it typically negotiated wholesale prices with local lodging establishments and then charged customers a room rate of that amount plus a facilitation fee. Expedia paid the city’s excise tax only on the wholesale rate and not the total amount paid by hotel guests.

Expedia argued that the U.S. Constitution’s Commerce Clause barred taxation of the company because it was an out-ofstate corporation lacking physical presence in Columbus. The court found that Expedia was acting as a collecting agent for Columbus hotel occupancy taxes, that it had contracted with Columbus hotels to collect the taxes, and that the taxes were actually imposed on the consumers.

The Georgia Supreme Court affirmed the trial court’s order permanently enjoining Expedia to collect the taxes on the room rate and not the wholesale rate and ordered Expedia to disclose to consumers the room rate and any hotel occupancy taxes imposed instead of simply providing the room rate and the “taxes and service fees” bundled as a separate line item. In October, the court granted similar injunctive relief in another case involving substantially similar facts ( v. City of Columbus, No. S09A0906 (Ga. 10/5/09)).


In February 2009, several OTCs were held to be liable to collect California local transient occupancy taxes calculated on the retail price paid by consumers for the rental of hotel rooms (Expedia Group v. City of Anaheim, Nos. 2008160–2008167 (Cal. Transient Occupancy Tax App. 2/9/09), petition for rev. granted sub nom. City of Anaheim v. Inc., No. S173946 (Cal. 8/31/09)). In May 2008, the city of Anaheim issued estimated transient occupancy tax assessments to the OTCs, and they appealed. As in the Georgia case, under the OTCs’ standard business model, they pay the hotels a discounted or wholesale price for rooms and then rent the rooms to consumers at a marked-up rate. The OTCs calculate the tax on the wholesale price.

The city contended that the OTCs should remit local transient occupancy taxes based on the retail price and not on the wholesale price. The OTCs contended that they are intermediaries and not hotel operators for purposes of the local ordinances (Anaheim CA Municipal Code § The OTCs further argued that amounts they charge for their online services are not rent as that term is defined by local ordinance (Anaheim CA Municipal Code § and therefore are not subject to the local transient occupancy tax. The OTCs also asserted that the city was redefining “hotel operator” to include OTCs in an effort to expand its tax base.

In the Expedia Group administrative appeal, the hearing officer ruled that the local tax is imposed on transients (the OTCs’ online customers), and he found that the OTCs are tax collectors, not taxpayers, under the local ordinances. The hearing officer ruled that:

  • By remitting taxes based on the wholesale rate, the OTCs are not in compliance with the local ordinances;
  • The Anaheim Municipal Code obligates the transient (i.e., hotel guest) to pay the tax based on what the transient pays for the privilege of occupancy; and
  • The OTCs are hotel operators under the ordinance, are responsible for collecting the transient occupancy tax from the transient based on the amount the transient pays the OTC for the room, and are in violation of their duty to fully collect the taxes and remit them to the city.

Many other localities have filed similar suits against OTCs. The city of Columbus is suing and Orbitz Worldwide Inc. The city of Atlanta has a separate lawsuit against Expedia, and Rome, Georgia, has sued the online travel industry in federal court. At the end of October, a jury found that (run by Expedia) and 10 other OTCs had failed to pay $20.5 million in hotel occupancy taxes to 173 Texas cities (San Antonio v., No. SA-06- 381-OG (W.D. Tex. 10/30/09)).


The decisions in both the Anaheim and the Columbus cases rest on questionable readings of the statutes involved. In both cases, the courts ignore the plain language of the statutes to hold that the OTCs are hotel operators and have therefore become tax collectors, when a plain reading of the statutes indicates otherwise.


Michael Koppel is with Gray, Gray & Gray, LLP, in Westwood, MA.

Unless otherwise noted, contributors are members of or associated with CPAmerica International.

For additional information about these items, contact Mr. Koppel at (781) 407-0300, or

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