Los Angeles Sues Online Travel Brokers Over Unpaid City Taxes

The city of Los Angeles has sued more than a dozen online travel organizations and their parent companies for failing to hand over taxes collected for online hotel rooms. City Attorney Rocky Delgadillo seeks to recover an unspecified amount of money, and also asked the court to award “additional damages for the sake of example and in sufficient amount to punish defendants for their conduct,” according to the complaint.

Listed as defendants in the case are Hotels.com L.P.; Hotels.com GP, LLC; Hotwire Inc.; Cheap Tickets Inc.; Cendant Travel Distribution Services Group, Inc.; Expedia Inc.; Internetwork Publishing Corp. (d/b/a Lodging.com); Lowest Fare.com; Maupintour Holding LLC; Orbitz, Inc.; Orbitz, LLC; Priceline.com, Inc.; Site 59.com, LLC; Travelocity.com Inc.; Travelocity.com LP; Travelweb, LLC; Travelnow.com, Inc.; and various unnamed individuals.

Los Angeles’ Uniform Transient Occupancy Tax is 14%, and must be collected by the defendants “who are the operators of the hotels at the time the rent is paid,” according to the complaint.

Plaintiffs contacted individually referred to a statement from the Interactive Travel Services Association (ITSA), an organization representing online travel companies and computer reservation systems.

“The city attorney’s lawsuit is wrong,” said ITSA executive director Art Sackler in the statement. “The claim that ITSA members do not remit collected taxes is false. The city’s hotel tax does not apply to online travel companies, which are not hotel operators and do not collect rent. These companies provide valuable services to assist consumers with booking hotel rooms.

Sackler continued: “The city is trying to impose a new tax on Internet services that is adverse to consumers. Under California law, any new tax must be approved by voter referendum. This one was not. Adding a new consumer tax is not smart tourism policy. By increasing the amounts consumers must pay, tourism and tax revenues will likely decline.

“The industry believes the lawsuit is without merit and will defend itself vigorously.”

The complaint also alleges that, “in most instances Defendants are charging more money in ‘fees and taxes’ than required by the statutory occupancy tax rate. These ‘fees and taxes’ often exceed the appropriate statutory occupancy tax rate by 1-3%.”

Los Angeles has requested that its motion be certified as a class action. The city also charged that the defendants, by not remitting the taxes, “engaged in unfair, unlawful and fraudulent business acts and practices,” and that they “have taken these monies for their own use and benefit, thereby permanently depriving Plaintiff and the Class the use and benefit thereof.”

While the papers were filed in the Superior Court of the State of California for the county of Los Angeles, Central District on Dec. 30, defendants were only served with them within the last day or two, according to a Los Angeles City Attorney’s office spokesman.

The spokesman also said that his office had been looking for other municipalities to join the suit, but did not have any information on what their level of interest, if any, was.