Thursday, July 16, 2009

Priceline Paid San Francisco, Industry Associations Irate about NYC Law

Priceline is set to pay $3.3 million in disputed hotel tax to San Francisco because of the city's pay-first requirement even as Priceline disputes the notion that online travel companies are responsible for hotel tax on the retail rate.

UPDATE: An attorney for San Francisco just told me that Priceline's attorney informed him that the online travel company wired tax money to the city today. Priceline paid, and the city received $3,409,844, including tax, penalties and interest through today.

Expedia and Hotwire this week wired $35.5 million to the city's tax office, and Travelocity is expected to ante up some $2.5 million, as well. For details, read here.

These developments occur as an industry source tells me that various industry associations, including ASTA, ITSA, NBTA and USTOA, may be researching legal options in order to challenge a new New York City law that may require agencies, tour operators and meetings planners to pay the city tax on their service fees and possibly commissions.

Update: In fact, Paul Ruden, ASTA's senior vice president of legal and industry affairs, just told me: "We will be working with other groups such as ITSA to try to get this [the New York City law] undone or overturned."

And, the NBTA stated: "NBTA is always concerned about new taxes that may affect business travelers. We are currently researching this law for further analysis."

But first, the following is a statement from Priceline on the San Francisco situation:

"In’s most recent 10-Q, the company noted that it expected to be assessed approximately $3.3 million by the City of San Francisco. The Company has recently received an assessment and expects to pay the assessment shortly. Payment of the assessment was explicitly required in order for the Company to be able to appeal the City Tax Administrator’s decision. The Company expects to promptly appeal the Tax Administrator’s decision to the courts.

"The Administrator’s decision is wrong and contrary to San Francisco’s own interpretation of its ordinance. In 2003, San Francisco proposed a new regulation to extend hotel occupancy taxes to cover amounts retained by the OTCs. The regulation failed. The Administrator’s decision is also contrary to decisions by the U.S. Court of Appeals for the Fourth Circuit and four federal district courts that have entered judgments in the OTCs favor that they are not liable for hotel occupancy taxes."

Regarding San Francisco, it is important to note that no court has ruled on whether the OTCs are responsible for the tax. Instead, a court has ruled that San Francisco's pay-first ordinance is legal and proper. Thus, the OTCs have to pay the tax in order to begin an appeals process.

Incidentally, only two other California municipalities -- Fresno and Long Beach -- have local pay-first ordinances. Some other cities outside of California, require tax-payers to secure bonds for their tax liabilities as a precursor to an appeal.

So what happened in San Francisco "is not the start of an avalanche," said one industry source, who's sympathetic to the OTCs.

This same industry source said several industry associations are very concerned and are looking into legal options related to a new New York City law that would appear to tax the service fees of OTCs, tour operators, traditional travel agents and meetings planners.

Until now, in the cross-country litigation about hotel taxes, tour operators, who use a merchant model to sell vacation packages, have not been targeted. In fact, the OTCs' vacation-package business likewise has not been zeroed-in on.

Update: Woops, the vacation-package business indeed has been targeted.

But, the New York City law has the potential to change this.

The NYC law says "room remarketers" are responsible for the full rent, meaning they would remit tax on the net rate to the hotels, and pay tax on the remaining rent, including service fees, directly to the tax commissioner.

Ruden of ASTA said the NYC law "plainly" targets agents' service fees "despite claims that the traditional agency model is not the target. Tax laws are usually interpreted 'as written' when the language is not ambiguous. The drafters went out of their way to avoid ambiguity with phrases such as '... through an internet transaction or any other means whatsoever, to offer, reserve, book, arrange for, remarket, distribute, broker, resell, or facilitate the transfer of rooms ....'"

Ruden said ASTA opposed the law before its enactment and "tried to get Mayor Bloomberg not to sign it. It results in double taxation of travel agent/distributor/'remarketer' income."

And the law defines rent thusly: "The consideration received for occupancy valued in money, whether received in money or otherwise, including all receipts, cash, credits, and property or services of any kind or nature, including any service and/or booking fees that are a condition of occupancy, and also any amount for which credit is allowed by the operator or room remarketer to the occupant, without any deduction therefrom whatsoever."

The industry source said some travel industry associations [and now ASTA has confirmed this] are in contact with Mayor Mike Bloomberg's office, are expressing their concerns and mulling legal recourse.

The OTCs ceased selling hotel rooms in Columbus, Ga., on a merchant-model basis after an adverse tax ruling in the Georgia Supreme Court. And Travelocity, dropped out of the Baltimore market, as well.

New York City's new tax ordinance is much broader than Columbus, Ga.'s and, well, the Big Apple attracts a few more tourists than does Columbus, Ga.

The stakes in NYC thus are a tad greater than in Columbus, Ga.

The industry source labeled the New York City law, adopted by the City Council and signed by the mayor, "a significant move and one that could be extraordinarily damaging to tourism in the city."

The New York City law certainly is a big deal -- one that could suddenly find the OTCs not wanting for industry friends.

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