On May 16, 2011, the Supreme Court of Georgia unanimously upheld a Fulton County judge’s ruling that online travel companies have failed to remit the appropriate amount of taxes to the City of Atlanta. This is a major ruling in the long running legal battle targeting the price scheme of online travel companies (“OTCs”). To read the Opinion in its entirety, click here.
Hotels typically contract with online travel companies such as Orbitz, Expedia, Hotels.com, and others for the right to sell hotel rooms to online consumers. When the consumer books the hotel room through the online travel company, the consumer is charged a retail rate. The online travel company then pays the hotel a lesser amount, a wholesale rate, and the online travel company pockets the difference. Rather than collecting a hotel occupancy tax on the higher retail rate that consumers paid, the online travel companies say they only collect the tax on the lower wholesale rate. In every transaction, the online travel company collects enough in bundled taxes and fees to cover the tax on the retail rate, but they have chosen not to remit those monies to the taxing authorities. Attorneys from Pope McGlamry argued on behalf of the City of Atlanta before the High Court that this practice shorted the City of Atlanta and several other local jurisdictions in Georgia out of millions of dollars in taxes owed under the statutes and ordinances in Georgia.
The Supreme Court found that, “[s]ince the consumer cannot obtain the right to occupy the room without paying the retail room rate charged by the OTC, it is the retail room rate that is the taxable amount or ‘rent’ under the City’s ordinance.” The Court also noted that there was no statute or governmental authority forcing the OTCs to collect hotel occupancy taxes. “Rather the OTCs are following their business model when they collect money for the payment of hotel occupancy taxes from consumers who wish to occupy the City’s hotel rooms,” Justice Benham wrote. The opinion continued, “[i]nasmuch as the OTC is the merchant of record and the consumer pays the line item ‘taxes and fees’ to the OTC and makes no tax payment to any other entity, then the OTC is collecting taxes as a matter of fact during each and every such transaction with the consumer who is the end user of the hotel room.” As a result, the OTCs remain liable to collect and remit taxes upon the retail room rate as long as they maintain their current business model.
At a time when many local governments are enduring budget crunches that force teachers to take furlough days and public libraries to close, it is unfair for online travel companies to fail to remit the taxes that they collect from consumers. The attorneys at Pope McGlamry have been hard at work on behalf of the City of Atlanta and the City of Columbus in order to put an end to the online travel companies’ tax scheme and force them to pay the back taxes that they owe. The Supreme Court of Georgia’s ruling that “[t]he monies collected do not belong to the [online travel companies],…” and that “[online travel companies] shall collect and remit  taxes monies lawfully” if they continue to collect hotel occupancy taxes” is a victory for City of Atlanta and other municipalities.
The Atlanta Journal-Constitution’s take on the ruling can be found here – “Court: Websites stiffed Atlanta on hotel taxes”