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Five Florida Counties Preparing to Sue Expedia, Orbitz, Priceline
 and Travelocity Over Shortchanged Bed Taxes

By Duane Marsteller, The Bradenton Herald, Fla.McClatchy-Tribune Regional News

October 25, 2009 - --MANATEE -- Manatee County is preparing to take on the Priceline negotiator, the Travelocity gnome and other online travel companies to court.

The county has signed on with a Tallahassee law firm that plans to sue the companies, contending they've shortchanged several Florida counties out of millions of dollars in tourist development, or "bed," taxes. The suit, expected to be filed in Tallahassee later this week, seeks to recoup back taxes.

Manatee County commissioners voted 6-1 Tuesday, with Joe McClash dissenting, to join at least four other Florida counties in preparing to sue Expedia, Orbitz, Priceline and Travelocity. Commissioners and county attorneys said they believe Manatee can recover a significant amount of money with little financial risk.

But collecting might not be easy: The online companies have largely succeeded in fighting off others who have tried, court records show. And some, including the Manatee tax collector's office, don't think there's that much money at stake to justify going to court in the first place.

Wholesale versus retail

At issue is how bed taxes -- Manatee's is 5 percent -- apply to the online companies, which reserve blocks of hotel rooms at pre-negotiated rates and then resell individual reservations to consumers at higher rates through the Internet.

The companies pay taxes at the wholesale rate, but local governments say it should be based on the retail rate.

"They are collecting the tourist development tax on the amount they negotiated with the hotel," said Ed Dion, partner of the Tallahassee law firm that has recruited Manatee and other Florida counties for the pending lawsuit. "We believe they should be paying taxes on the price charged to the consumer."

The industry argues that it is exempt from local bed taxes because they are middlemen who facilitate the booking of hotel rooms and other lodging.

"It makes no sense to apply hotel taxes when you are not a hotel, and online travel companies do not own or operate hotels," said Andrew Weinstein, spokesman for the Interactive Travel Services Association, a trade group based in Washington, D.C.

Industry won most cases

The industry has successfully used that argument to defeat several lawsuits.

A federal appeals court ruled earlier this year that Pitt County, N.C's bed-tax ordinance did not apply to online travel companies because they don't have possession of hotel rooms. That mirrored earlier rulings by federal judges who dismissed similar lawsuits filed by the cities of Louisville and Lexington, Ky., and Orange, Texas.

The cities of Bellingham, Wash.; Fairview Heights, Ill., and Oakland, Calif., and Leon County, Fla., dropped their lawsuits after protracted court proceedings.

Yet the lack of courtroom success hasn't stopped others from trying.

At least 25 similar suits remain pending in federal court, including those filed by Baltimore; San Antonio; Monroe County, Fla.; and Charleston, S.C., according to court records. An Orange County, Fla., case remains active in state court. And Dion said the industry is challenging a Broward County, Fla., audit that said the county is owed $6.2 million in unpaid bed taxes, interest and penalties since 2000.

Dion said the lawsuit he plans to file on behalf of Manatee, Lee, Leon, Pinellas and Polk counties will take a different legal approach than previous ones.

It will seek a court declaration that the Internet companies are retailers under state law, must register with the Florida Department of Revenue and must collect bed taxes at the retail level. Then, the counties will seek back taxes.

"We're going to be seeking repayment going back as far as the court will let us," Dion said. "We believe it will be in the millions of dollars."

How much owed unknown

But just how much, no one knows for certain.

The Manatee County Tax Collector's office said the county has collected $4.96 million in bed taxes so far this fiscal year, with one month remaining.

But it doesn't know how much, if any, is due but uncollected because it hasn't done an audit, said Ray Williams, its director of delinquent collections.

Even if the county requests an audit, which could take six months, the results likely won't reveal a large amount, he said. That's because Manatee has a smaller concentration of chain hotels, which are more likely to be booked through online sites, than elsewhere in Florida.

For that reason, the tax collector's office has declined at least five law firms' pitches to sue on its behalf in recent years, Williams said

"We just chose to stay out of it," he said. "We don't think the fiscal impact is big enough to warrant the time and money involved."

Two county commissioners who supported suing the online companies said they didn't know the tax collector had passed on litigation, but said it doesn't change their minds.

"We have a responsibility to go after that money regardless of the amount," Commissioner Donna Hayes said.

Both she and Commissioner Larry Bustle said they supported joining the lawsuit because the potential recovery outweighed any financial risk to the county. Under the county's agreement with Nabors, Giblin & Nickerson, attorneys' fees will be capped at 30 percent of any money that is recovered.

"If we don't recover anything, there's no expense to the county," Dion said. "They won't lose anything."

Weinstein said that might not be the case, especially if protracted litigation drives up other legal costs like filing fees, travel expenses and court reporter fees.

McClash cited the potential hidden legal costs, plus an unwillingness to sue travel companies during a recession, for opposing Manatee's entry into a legal debate that has been ongoing for more than a decade.

Economy playing a role

So, why sue now?

The down economy is a factor, officials acknowledge. In an era of rapidly declining property tax revenue, local governments are even more obligated to go after money it believes it is rightly owed to them, officials said.

"We're all looking for revenue," Bustle said.

Also playing a role: The industry's efforts to win amnesty on past taxes.

Three bills filed in the Florida Legislature's last session would have granted the online companies amnesty for back taxes in exchange for requiring them to collect future taxes at retail. All three died in committee.

Although no bills have been filed in Congress, "there have been discussions" about some form of back-tax forgiveness, Weinstein said.

The county's top tourism official said that likely is the best way to resolve the dispute without threatening the travel industry's recovery and without retaliation, such as Expedia delisting all of the hotels in Columbus, Ga., from its Web site after a legal victory by the city.

"It's a losing battle for everybody to bulldoze ahead and say we want all our money back," said Larry White, executive director of the Bradenton Area Convention and Visitors Bureau. "The art of politics is compromise."

Duane Marsteller, transportation/growth and development reporter, can be reached at 745-7080, ext. 2630.

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Copyright (c) 2009, The Bradenton Herald, Fla.

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