Tuesday, July 14, 2009

Expedia.com, Hotwire Reportedly Pay $35M in Hotel Taxes to San Francisco

Andrew S. Ross broke the story today that Expedia and Hotwire wired some $35 million in hotel taxes to the City of San Francisco.

If true -- and I'm trying to confirm it -- the development is a shocker.

The two Expedia Inc. companies had filed a notice of appeal, meaning they intended to appeal a Los Angeles Superior Court ruling that held that they must first pay the tax to San Francisco in order to appeal the whopping assessment.

This could be just a tactical defeat for Expedia and Hotwire. Perhaps they are indeed merely paying the tax in order to vigorously appeal it.

But, it would represent an abandonment of the OTA strategy to drag out the litigation for as long as possible.

What most people don't realize is that Expedia Inc., among the online travel agencies, is the company with the most to lose. Its hotel business is so massive, that the other OTAs face a much smaller liability and threat.

For background on the case, read this story I wrote July 7.

Today's San Francisco Chronicle story said that Priceline and Travelocity, which were not part of the Expedia.com-Hotwire litigation but were involved in separate actions, were expected to pay more than $6 million, as well.

I'm reaching out to San Francisco's chief tax attorney to confirm the story. And, I have e-mailed the online travel agencies tonight to get their take on the development and to find out what actions they have taken or plan to execute.

This is a major development in the five-year old hotel tax fight, as thousands of municipalities, counties and states target the OTAs with assessments or litigation related to hotel taxes on the full retail rate.

If true, I wouldn't be surprised to see the OTAs pull out of the San Francisco market in terms of offering hotels on a merchant basis.

If they intend to appeal the assessment, as I suspect they will, then perhaps they will continue to market the city's rooms on a merchant basis while an appeal is under way.

Other municipalities could get the same treatment regarding OTA boycotts if the cities prevail in the courts.

For now, I see that Expedia.com and Hotwire still are offering San Francisco rooms using the merchant model.

The OTAs have more litigation and adverse development hitting them on the hotel tax issue than they can handle.

New York City recently adopted an ordinance that holds hotel "remarketers" as responsible for tax on the retail rate. With such explicit language, it may become moot whether the OTAs can convince New York courts of the OTAs' contention that because they are not hotel operators, they thus are not responsible for the tax on the retail rate.

And, Expedia Canada just got handed a consumer class-action complaint against it, charging that it misleads consumers by bundling its "taxes and fees" instead of breaking them out in a transparent manner.

We'll have to see what the San Francisco development means in terms of the countrywide (and now Canada, too) legal battle.

Is it merely a significant defeat for the OTAs in one city -- or the dawn of a new era in terms of the ways they market hotels online?

Will the OTAs abandon the merchant model for hotels in favor of an agency model only?

Any abandonment of the merchant model would have a whopping impact on the OTAs, with Expedia feeling the most heat.

On the other hand, we saw when they abandoned booking fees on flights, that the OTAs can come up with flexible ways to try to recover.

Stay tuned here on what the San Francisco development really means.

I'm awaiting further details on this breaking news story.


Jim Humphrey said...

Expedia is a rip off. I booked a night's stay at a La Quinta hotel in Missoula, MT through Expedia. When I went to Expedia web site and indicated I needed a room for two it gave a price of $114.00 per night but when I signed up for it, the price was $124.00, plus taxes, etc for a total of $134.00. When I got to the hotel the clerk said I could have had the room for $89.00 had I booked it directly with them.

Anonymous said...

Sorry folks,

I think this is the WORST kind of litigation. I have used Expedia, Priceline, and others many times. These companies offer a valuable service. When looking for a hotel, I will often consult Expedia first. It is generally not the only way I look for a hotel.

Of course the hotel can offer a better price when you go there direct. Frequently they do. Often they don't! It's up to them.

Expedia is a great way to find out a list of hotels for the area I plan to visit. That's a service worth paying for. If I decide to use Expedia, because it's the best deal I could find, then I accept the charges they assess. That's the deal! They have a right to make money. If they don't make money, then they can't provide the service.

I'm concerned that we have become addicted to litigation as a way to make money and to punish the successful. If this lawsuit is real, I'll be opting out.


Gale said...

Like Ron (above) says Most of these services are good for a overall "look" of the rooms available in the area, but unlike Jim Humphrey (above) I also do a little research and have at times got the best price directly from the hotel.

Want the best price? take a little time, do your research and do it yourself. The expectation that somebody else will find the best for you is silly. Want one stop shopping? Don't complain if you find later that you did not get the best deal.