|By Jefferson George, The Charlotte
Observer, N.C.McClatchy-Tribune Regional News
Jan. 29, 2008 - A dozen online travel companies have failed to pay millions of dollars in Mecklenburg County taxes over the last several years, the county claims in a lawsuit.
A spokesman for the online travel industry, however, says the suit is just another, likely unsuccessful, attempt by a local government to grab a piece of a service fee that isn't taxable. Of more than 30 similar suits across the U.S., he said, none has resulted in a judgment for a local government or in a settlement.
Filed two weeks ago in the Superior Court of Mecklenburg County, the lawsuit claims that Expedia, Hotels.com, Travelocity and other Web sites regularly don't pay hotel occupancy taxes on part of the money they collect from customers.
As a result, the suit states, Mecklenburg has been shortchanged more than $1 million in taxes each year. Robert Adden, an attorney for the county, said the losses may equal 10 percent of all occupancy tax revenue -- now about $25 million a year.
At issue is the gap between the money that companies collect from customers and what they pay hotels. The Web sites negotiate with hotels on discounted room rates, then charge customers a higher rate -- as much as 20-25 percent more.
The companies pay occupancy taxes based on the lower rate, but Mecklenburg County wants the companies to pay tax -- now 8 percent -- on the amount charged to the customer.
For instance, if a customer pays $100 for a room through the Web site but the company negotiated a $75 price with the hotel, Mecklenburg gets $6 in occupancy taxes. The county wants $8 -- the amount of occupancy tax it says is charged to customers.
"Defendants collect the full amount of the tax from the consumer," the suit states, "but only remit a portion, often only half, to the county. The subterfuge is an attempt to avoid and evade payment of the full amount of taxes which are owed by law to Mecklenburg County."
The county also collects a 7.25 percent sales tax on each room, which isn't at issue in the lawsuit. Mecklenburg had more than 22,500 hotel rooms as of December, according to the Charlotte Regional Visitors Authority, but not all rooms and hotels are listed on travel Web sites.
An Expedia spokeswoman declined comment Monday, and a Travelocity spokeswoman referred questions to Art Sackler, executive director of the Interactive Travel Services Association, a trade group for the online travel industry.
Mecklenburg's lawsuit is similar to more than 30 others that local governments across the U.S. have filed against the travel companies in recent years, Sackler said. Each suit, he said, wrongly claims that the service fee included in the price that online companies charge to customers is taxable.
"It's not a markup," he said, calling the lawsuits "wrong on the facts and wrong on the law."
"The companies are not hoteliers," Sackler added. " ... They don't buy blocks of rooms and pass them on."
None of the suits has resulted in a judgment for the plaintiff or a settlement, Sackler said, and many have been dismissed.
Several other Carolinas cities and counties have filed similar suits, including still-pending cases involving the N.C. counties of Wake, Buncombe and Dare. The Mecklenburg suit ultimately may be merged with those of other N.C. counties, Adden said.
Over $1 million at stake
Online travel companies sued
Mecklenburg County filed a lawsuit against 12 online travel companies that county officials say haven't paid the full amount of their hotel occupancy taxes. They are:
--Internetwork Publishing (Lodging.com)
--Trip Network (Cheap Tickets)
Jefferson George: 704-358-5071
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