Travelocity Pays $2.7 Million Hotel Tax to San Francisco

Travelocity paid $2.7 million to the City of San Francisco on July 23 as part of its obligation to "pay first" before being able to appeal the city's hotel tax assessment.

The payment covers what the city argues was Travelocity's outstanding hotel-tax obligation on the retail rate -- as opposed to the tax recovery charges Travelocity previously remitted to hotels on its net rate under the merchant model. The payment covers the period from the beginning of 2000 to the third quarter of 2008, including taxes, penalties and interest.

As I wrote, Expedia and its Hotwire unit already paid the city $35.6 million and Priceline wired over $3.4 million. Orbitz is believed to be in the assessment process.

The payments -- some $42.7 million -- do not "prove" that the three online travel companies ultimately will owe the city the tax. Instead, a Superior Court in Los Angeles ruled that San Francisco's pay-first ordinance was proper, and thus it did not decide the merits of the tax issue.

So, the utlimate outcome of the case is undecided. It would be premature to count out the OTCs because they've recorded their share of victories around the country.

Still, this has not been a great few months for the OTCs.

As I reported , Expedia reached a proposed settlement with Washington State consumers in a class-action suit that revolved around the way the OTC presented its "taxes and fees" in merchant model hotel sales.

The judge in the case earlier found that $184.5 million in damages would be "warranted" in the case. The actual amount of the settlement has not been disclosed.

And, in another downer for the OTCs, New York City recently adopted a law that taxes the service fees of hotel "remarketers" -- a provision that not only targets the OTCs, but traditional travel agents and wholesalers, as well.









(industry associatons

Shocker: San Francisco Assessed Expedia's Vacation-Package Business, Too

When Expedia.com and its sibling Hotwire wired in $35.6 million to the City of San Francisco, and when Priceline transmitted its $3.4 million in taxes, penalties and interest today, these assessments included the online travel companies' large vacation-package businesses -- and not just their standalone merchant-model hotel businesses.

When San Francisco compiled its assessments of the OTCs, including Travelocity, it assigned values to the hotel components within air/hotel or air/car/hotel vacation packages, in addition to assessing tax liabilities for solitary hotel sales.

Including the OTCs' vacation-package businesses in these tax disputes makes their potential liabilities, if the city prevails, much larger than I realized.

I have been writing about the hotel-tax issue for five years, and this was the first time I've heard that packages were part of the equation.

For Expedia.com, its standalone hotel business is much larger than its lodging bookings within vacation packages, but including its package business in tax assessments considerably ups the ante.

That is especially true if other tax jurisdictions are calculating assessments in a similar manner.

And, it also providers greater weight to my theory that the City of San Francisco would consider going after tour operators and wholesalers next.

Tour Operators, Wholesalers Could Be Next in San Francisco Tax Dispute

The online travel companies label San Francisco's pursuit of them on the merchant-model hotel tax issue as "discriminatory," in part because only OTCs, as far as is publicly known, have been targeted.

To date, no tour operators, or travel wholesalers, which employ the merchant model in selling vacation packages, have been the subject of litigation by cities, counties or states.

But, reading between the lines, I believe that San Francisco eventually will go after tour operators and wholesalers selling vacation packages in the city -- especially if San Franscisco prevails in its tax fight against the OTCs.

Jim Emery, San Francisco's chief of complex litigation, declined to comment on whether any tour operators or wholesalers are subject to administrative proceedings or assessments, or even whether this travel industry sector is on the city's radar.

But, Emery adamantly rejected the notion that San Francisco's tax-collection efforts are discriminatory.

Emery said the city's tax office, like that in any jurisdiction, has constraints on its enforcement abilities, and just "because you haven't gotten to someone else" doesn't mean another entity would not escape scrutiny.

"We go where it's coming to our attention that a tax is due and make resource allocations," Emery said.

He added: "It isn't discrimination against anyone in a taxpayer audit if you haven’t gotten to another taxpayer yet."

I'm interpreting that to mean that tour operators and wholesalers could be next on the City of San Francisco's target list.

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

I confirmed that Expedia and Hotwire indeed paid some $35 million in hotel taxes to the City of San Francisco on Monday, a necessary step if they want to further challenge the assessment administratively and eventually in court.

I wrote about this yesterday, but now have more details.

Jim Emery, San Francisco's chief of complex litigation, told me that Expedia and Hotwire had filed a notice of appeal July 1, a step in challenging an earlier ruling that the city's pay-first rule is valid. But a judge in Los Angeles Superior Court, which is handling the San Francisco case, dismissed Expedia and Hotwire's petition July 9, Emery said.

So, no court has determined whether Expedia and Hotwire actually owe the tax. But, to challenge that assessment and to seek an $8 million refund (which no one is talking about publicly but I believe is related to an admininistrative assessment against hotels.com), Expedia and Hotwire had to pay first.

Only after taking these administrative steps can they challenge the assessment in court.

Emery said the city is having discussions with Priceline ($3.5 million) and Travelocity ($2.5 million) about their tax tabs and "I expect they will be paying within a week, although we haven't closed the loop."

He said that Priceline and Travelocity previously agreed that they would go along with the Los Angeles Superior Court findings regarding San Francisco's pay-first rules.

Meanwhile, Orbitz spokesman Brian Hoyt confirmed that his company is engaged in administrative proceedings with the city over any potential tax liability.

Hoyt said Orbitz continues to be "concerned" about what he characterized as anti-tourism, anti-consumer and "discriminatory attacks through the court system."

He said cities would be "far better off" working with the online travel agencies instead of against them.

Although the OTAs dropped out of selling merchant-model hotel inventory in Columbus, Ga., and Travelocity exited the Baltimore market, Emery said he has "every expectation" that the online travel companies will continue to conduct their merchant-model hotel business in San Francisco.

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.