(Sorry, couldn’t resist the Falcons reference…)
The Georgia Supreme Court is in the midst of a fairly tricky procedural debate about the way that online travel companies collect and remit taxes – and whether cities have an obligation to pursue traditional assessments for a nontraditional industry. We’ve seen a lot of debate and confusion when in comes to tax and the internet – expect that only to heat up.
In this latest case, lawyers for the city of Atlanta claim that online travel firms like Hotels.com, Travelocity.com, Orbitz.com and Expedia.com (there are 17 such companies involved in the suit) failed to remit sufficient hotel taxes to the city. The city alleges that the companies collected occupancy taxes from consumers based on rates that consumers paid to reserve hotel rooms but did not pass those taxes along to the city. The companies, the city asserts, only remitted taxes based on what was actually paid by the companies (not the consumers) to the hotels.
Sound confusing? It is. Online travel companies often purchase blocks of hotel rooms from hotels at discount prices, then market those to consumers at a rate which is discounted from the “normal” price but marked up from the reserved price. The difference is how they make money. Atlanta, however, claims that the difference in taxes which was retained by the company should have properly been paid to the city.
Attorneys for the travel companies claim that the tax charges to consumers are estimates, which is standard in the industry. The difference between funds collected and remitted, they argue, are considered “service fees” and not taxes.
Whether that’s a fair practice isn’t likely to get litigated any time soon. First, the lawyers have to fight about whether Atlanta can even properly bring the suit against the companies.
E. Kendrick Smith, part of the legal team at Jones Day representing the online companies, argued before the Georgia Supreme Court that Atlanta has no standing to bring the suit. Smith claims that Atlanta failed to first exhaust its administrative procedures regarding tax assessments and collection. That’s not a bad argument, apparently, since last year, a Fulton County judge initially dismissed the suit on those grounds. That ruling was affirmed by the Georgia Court of Appeals. Now at the Georgia Supreme Court level, attorneys for the city of Atlanta hope to turn that around. The city agrees that a specific assessment hasn’t yet been made but argues that the online companies have not been cooperative for the purposes of assessments. Further, forcing an assessment is impossible when the courts have not yet resolved the question of whether the companies are even liable for the tax. This is, admittedly a problem. It reminds me of the age old dilemma:
Which came first, the chicken or the egg?
We’ll see.
In the meantime, while the arguments go on, the statute of limitations is still running. And no word yet on what the ruling will mean for consumers and other cities… but you can bet that they’re watching!
