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South Carolina's Supreme Court Next to Hear Case
in Ongoing Hotel Tax War on OTA's

By Claudia Lauer, The Sun News, Myrtle Beach, S.C.McClatchy-Tribune Regional News

Feb. 23, 2010--The S.C. Supreme Court has stepped in to hear a case between an Internet travel booking site and the S.C. Department of Revenue that could set a precedent for the other cases being brought by S.C. cities and counties against similar Internet travel booking companies.

The S.C. Administrative Law Court ruled in favor of the Department of Revenue on Feb. 12, and the Supreme Court stepped in to hear the case after attorneys for Travelscape LLC filed an appeal of the decision. The Department of Revenue, along with about 40 cities nationwide and dozens of other revenue departments in other states, have filed lawsuits against online booking agents saying that the companies collect more taxes than they remit when they broker the sales.

A spokeswoman for the S.C. Department of Revenue confirmed that the state Supreme Court will hear the case, but said she could not comment further on ongoing litigation.

Spokespeople for Travelscape's booking partner, Expedia Inc., did not return messages left requesting comment.

John Weaver, the interim Horry County administrator and county attorney, said Monday that if the court upholds the lower court decision, it would likely set a favorable precedent for the lawsuits brought by the county, Myrtle Beach and North Myrtle Beach against the Expedia companies, as well as for the other travel booking sites including Orbitz and Hotels.com.

"The Supreme Court is ruling on the legal theory. If they rule that it will be the law of the state, then we won't have to address it with the trial judge. What we will have to do is prove our damages," he said. "Priceline and Hotels.com would not be automatically bound by that ruling. When push finally comes to shove, what is a precedent in one case will be applicable to another case that is similarly situated. They could delay and stall and come up with other reasons, and those things may or may not be applicable. In the end, whatever decision is made will be a precedent in these lawsuits."

Weaver gave an example of a hotel owner agreeing to charge a travel site $75 for a room, and the travel site negotiating a rate of $100 for the room. The county's contention arises when the travel sites charge the appropriate state tax on the $100, but only give the state the tax revenue for the $75 rate. The travel sites have argued that the hotels are the parties that should be remitting the appropriate taxes to the state and the municipalities. The Administrative Law Court ruled earlier this month that the companies should be paying tax on the gross amount they charge for a room rather than the net worth charged by the hotels.

Weaver said if the result is ultimately in favor of the county, it will be owed back taxes from 2004 through whenever that decision is reached, which could result in hundreds of thousands of dollars in lost tax money being reinstated to the state and county. The Municipal Association of South Carolina has signed on in an amicus brief showing its support for the revenue department, and Weaver said the County Council will likely ask the S.C. Association of Counties to do the same. Myrtle Beach City Manager Tom Leath said the money would be a boon to the city's coffers and fair play to other area businesses.

"I don't know how much money we're talking about, but we feel the online travel sites should pay the full tax as other businesses that are inside the city and renting rooms pay," Leath said. "It's not fair for them to catch a break when our local businesses don't catch a break."

Brad Dean, president and chief executive of the Myrtle Beach Area Chamber of Commerce, said the result of the lawsuit will likely be a change in the business model for the travel sites, but likely wouldn't affect the average consumer or tourist looking for a good deal on a hotel room. He said if the ruling is in favor of the counties and cities, money could go to public services.

"This wouldn't be a Myrtle Beach-specific rule change. It would likely be state or nationwide, so I doubt that it will have a direct impact on the tourism market," he said. "The thing I think people haven't been thinking about is the impact reduced tax collections have on things like fire protection and infrastructure, or the county police or the local school system. Even the county [accommodations] tax committee and all the money they give to nonprofits and other agencies would be affected."

Contact CLAUDIA LAUER at 626-0301.

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