October 25, 2013

NH latest to sue online travel sites over taxes

The lawsuit accuses Expedia, Orbitz, Priceline and Travelocity of paying the rooms and meals tax on a special wholesale rate rather than on the price they charge customers.

By Holly Ramer
The Associated Press

CONCORD, N.H. — New Hampshire has become the latest state to sue four online travel websites and their subsidiaries in hopes of recovering hundreds of thousands of dollars it claims it is owed in back taxes.

The attorney general’s office on Friday released a lawsuit filed last week accusing Expedia Inc., Orbitz, LLC, Priceline.com Inc., and Travelocity.com of paying the state’s 9 percent rooms and meals tax only on the lower, wholesale rate they pay hotels and rental car companies instead of on the higher, retail price they charge consumers.

The state argues that’s unfair and misleading both to consumers, who aren’t given a detailed breakdown of the “taxes and fees” they pay, and to local businesses that pay the tax on the full retail rate.

“Defendants cannot hide an additional and illegal profit stream under the guise of ‘taxes and fees,’” the state wrote.

The state collected just under $248 million in rooms and meals taxes for the fiscal year that ended June 30. Assistant Attorney General Philip Bradley said determining how much the travel companies might owe is difficult, but he estimates it is in the range of hundreds of thousands of dollars per year.

“When states are losing that 25 percent to 33 percent markup, that adds up fast,” he said. “In a time of difficult budgets, states are trying to make sure they’re collecting all the tax they’re due, and when there is a significant gap like this, the state should make an effort to close that gap.”

The president of the Travel Technology Association, which represents online travel industry, called the lawsuit a waste of taxpayer resources and said it is grounded in a lack of understanding of how online travel agents operate.

“We don’t acquire hotel rooms. We don’t rent hotel rooms. We don’t operate hotels. We facilitate the reservation and in some instances collect the payment from the consumer which is then remitted directly to the hotel operator which are responsible for then submitting the tax payment,” said Steve Shur. “Online travel agencies have prevailed in the vast majority of these cases and expect to do so in this matter as well.”

In February, a divided three-judge panel in Florida sided with the online travel companies, ruling that tourist development taxes are due only on what the firms pay to hotels, not the full amount they charge their customers. The case is heading to the state’s highest court.

In March, a Hawaii court slapped the companies with a $70 million fine in March after deciding that they owed the state $158 million in unpaid taxes and interest. The companies are appealing the ruling.

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