WEATHERBed tax bedlam: Erie County joins lawsuit against Internet travel sites
Oct 22
2010
The little red-hatted Travelocity gnome might have sticky fingers.He and his colleagues — all spokesmen for discount travel websites — may be yanking money out the pockets of Erie County and other municipalities, according to a federal lawsuit filed against more than a dozen travel websites.
The thousands of tourists who visit the Sandusky area produce millions of dollars in bed tax revenue, but officials from Erie and two other Ohio counties say an untold portion of bed taxes never make it into government coffers.
That’s because some of those tourists book hotels through travel websites rather than using the hotels directly.
The three counties have filed suit against a group of prominent Internet travel companies and other unnamed defendants, alleging the websites are cheating the counties out of bed tax money that’s due by law.
Filed in Hamilton County Common Pleas Court by officials from Erie, Cuyahoga and Hamilton counties, the lawsuit alleges that prominent travel sites such as Expedia, Hotels.com, Priceline and Travelocity are pocketing some of the bed tax money.
The website operators turn in some of the bed tax money that’s due, but not all of it, the lawsuit says.
The business model the websites use is simple: They rent a hotel room from a hotel, then resell it to a customer at a higher price.
The website operator might pay $80 to the hotel to rent the room, for example, but turn around and sell it to a customer for $100.
If that’s true, the lawsuits says, the bed tax — based on a percentage of the room’s total cost — should be calculated by using the total sale price of $100.
The travel websites argue that the taxed rate should be $80, which is the amount the hotel receives for the room.
Ohio law says the bed tax is collected as a percentage of what the customer pays, said Sandusky attorney John T. Murray, the lead attorney on the lawsuit and the representative for Erie County.
The customer is paying the bed tax based on the highest price, but the websites are turning in bed taxes based on what they actually paid the hotel. The websites are then pocketing the difference, Murray said.
“The consumer is ultimately liable for the tax,” Murray said.
Andrew Weinstein, a spokesman for the Interactive Travel Services Association, said attorneys like Murray don’t understand the law.
Most bed tax laws were written decades before the Internet, but courts have typically found that the only fair way to levy the tax is to base it on the revenue the hotel actually receives for the room, Weinstein said.
Out of 12 cases resolved so far, 10 courts ruled in favor of the online travel agencies while two other courts delivered mixed verdicts.
Murray said he became interested in the issue several years ago when hotel operators in Ohio expressed concern about the liability that online hotel room vendors were creating for them.
There are at least 40 similar cases nationwide, and the litigation is complex because different states have different laws, Murray said.
Weinstein’s organization contends that bed taxes should be governed by a national standard, rather than forcing travel sites to deal with different laws in 50 states.
In Erie County, where the bed tax rate is 2 percent, revenue from bed taxes in 2009 was about $2 million. That figure doesn’t include separate bed taxes levied by smaller governmental bodies, such as townships like Perkins.
Most of Erie County’s bed tax money is used to promote tourism.
Of the $2 million collected last year, for instance, just $61,136 went to Erie County’s coffers. The remainder went to Lake Erie Shores and Islands East, the visitors bureau that promotes tourism in Erie County, said Brianne Markley, Erie County auditor’s fiscal officer.
The visitor’s bureau gives $170,000 back to Erie County each year. The county then uses the money for improvements to U.S. 250, said Pete Daniel, Erie County’s finance director.
Murray said he doesn’t have an estimate on how much money the lawsuit could bring in. Nationally, Internet booking sites such as Expedia account for 30 to 40 percent of all economic activity in the hotel market.
Erie County is one of Ohio’s tourism hot spots, given that it’s home to Cedar Point, Kalahari Resort and other notable attractions, such as the Lake Erie islands.
Cincinnati is located in Hamilton County and Cleveland is in Cuyahoga County, so a lawsuit filed by those three Ohio counties together represents a big portion of Ohio’s tourism revenue. Lawyers for all three counties are participating in the lawsuit.
Murray said he filed the suit on a contingency basis — he’ll only get paid if Erie and Cuyahoga counties win and collect money.
When Murray began working on the issue, then-Attorney General Jim Petro declined to join the suit. Since then, Marc Dann and Richard Cordray, the attorneys general after Petro, have also declined to join the suit.
The defendants named in the lawsuit include: Hotels.com, Hotwire, Cheap Tickets, Cendant Travel Distribution Services Group, Expedia, Lodging.com, Lowestfare.com, Maupintour Holding, Orbitz, Priceline, Travelocity, Travelweb and Travelnow.com.
Read the entire lawsuit by clicking on the pdf document below:
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03:27 PM
local man says
I use priceline often to book my travel. My most recent experience involved a hotel that charged $65 nightly plus 13% tax. I booked the room for $42 with the priceline 22% fee resulting in a $51 nightly fee. I don't care how the priceline fee is split up from there, the end result was that I saved $25 dollars a night that I would have spent if I booked directly with the hotel.
03:20 PM
local man says
I use priceline often to book my travel. My most recent experience involved a hotel that charged $65 a night plus 13% tax. I booked a room for $42 with the 22% priceline fee resulting in $51.50 a night. I don't care where my fee goes, the end result was I saved $25 dollars a night that I would have spent if I booked directly with the hotel.
12:16 PM
Hmm says
Some bed tax is definitely better than none. But billing the tourist the bed tax based on $100 and turning that tax money over to the county based on $80 is stealing.
04:20 AM
goofus says
I must confess, I've never used a travel site,but can I assume it's like e-bay, open for bids. Now if the website buys a room am I to assume that this room is vacant and the county wouldn't have gotten any bed tax at all but the hotel owner will gladly sell an unrented unit. Some bed tax is better than none. Now the ragister's scenario is that they resell an $80 room for $100. What if they only get an offer of $70 wouldn't they still sell to recoup some of their expense? In that case, the county gets more in bed tax.
11:21 AM
Hmm says
William - The issue is that they are charging the higher tax to the consumer, but turning over the lower tax to the county. Why is that so hard to understand? My theory is that we have a bunch on moron bloggers who hear "tax" and "attorney" and go balistic, without bothering to READ or UNDERSTAND. So everyone here is ok with Travelocity charging their customers a tax, and putting it in their own pocket?
10:23 AM
eriemom says
Why is it that so many on this site feel the need to make everything a political statement???? This looks like an issue that should be resolved. Why would tea-bagger types choose to take the side of being taxed more? It is very simple. If I am BEING taxed, than the tax should go to the IRS, not toward the bottom line. The other alternative is to not charge the buyer a tax when it is clearly not. Either solution works, and that is why we have a judicial system. Jeez
06:41 AM
goofus says
Thank you Mr. President for getting me on topic, I stand corrected.
05:15 AM
William Jeffers... says
Goofus. Most attorney's love a good lawyer joke, but you need to stay on topic here. For example:
Q. What's the difference between a bed bug and a Lawyer? A: Once is a blood sucking vermin infesting the hotel industry....and the other is an insect.
05:10 AM
William Jeffers... says
I talked to Shatner. He is bringing in his team from Boston Legal.
Expedia or Travelocity actually refunds $$ if someone else books a room at the same hotel for less than they charged you. So now they actually sold the room for more $ and are refunding a portion to comply with their sales policy. In that case is the counties can contend that the original price is the tax value as well. What a nightmare. Weinstein nailed it when he said this needs to be governed by a national standard. Anybody know the case law on the 2 mixed verdicts?
04:18 AM
goofus says
Deep six, what's the difference between a catfish and a lawyer? One is a bottom feeding scum sucking parasite, and the other is a fish.
04:14 AM
goofus says
Gee Mr. Murray, I surely didn't mean to make you irrigated, because my neighbor needs your help. While walking in his yard the other day, and he stepped in dog poo. We can't find the dog, so he wants to sue Alpo and Dad's dog food in a class action lawsuit.
05:26 PM
DEEPsix says
Another example of the "liberal" left lawyers trying to DESTROY FREE MARKET TRADE AND TAX THE LIFE OUT OF MORE BUSINESSES... Man ol'man..... can't these idiots understand these service providers buy "blocks" of rooms, pay taxes even on UNSOLD rooms, and................ THEY GIVE CONSUMERS A MUCH GREATER OPPORTUNITY TO VISIT AN AREA IF THE DISCOUNTER/SERVICE ADVERTISES THE ROOMS WITHIN THE AREA, AND THUS THEY INTICE MORE PEOPLE TO TRAVEL TO THIS GOD'FORSAKEN AREA!!!!!!! These "bottom feeder" lawyers need to pack their bags and move to an island so they can feed off each other!!!!! They ARE not providing any greater service to society than a carp in Lake Erie.... Oh wait, whats the diference between a CARP and a lawyer.... NOTHING, THEY'RE BOTH BOTTOM FEEDERS... To quote Sen John McCain on the Senate floor two years ago...
03:29 PM
mikel says
thank you
03:21 PM
Hmm says
What Travelocity is doing is charging the bed tax, then putting part of it in their pocket. If you owned a business, and you charge a tax (which you would be required to do), and instead of turning that tax over to the state or local gov't, you KEPT part of it, wouldn't that be wrong? Travelocity buys a room for $80. They sell it to someone for $100. They charge the person they sell it to 2% bed tax on the $100. So the tourist pays $2, but Travelocity only gives Erie County $1.60 and they keep the rest.
03:08 PM
mikel says
i see no difference. i bought something and paid tax on it.
just think about it this way. if travelocity buys a block of 10 rooms at least the hotel has made a sale of 10 rooms, whether or not travelocity gets rid of them, and the county has made "bed-tax" off of that sale. what happens if the websites just say ok, we won't use those tactics anymore? the hotel is out a sale of 10 rooms and the county is out of their "bed-tax".
i don't hate murrays, don't know them. just trying to figure this out.
01:56 PM
Hmm says
sorry, I meant to say Travelocity is charging 2% bed tax...
01:55 PM
Hmm says
Mikel - first of all, "yes". You owe tax on profits that you make. But this suit isn't about a SALES tax its about a BED tax, Think about it: Travelocity is charging the guest 2% sales tax on what they paid for the room, but they are only giving the county 2% of what THEY paid for it and they are keeping the rest! Why isn't anyone mad at Travelocity for taxing our tourists a BED tax, but only giving part of it to us?? Your invoice from the hotel says you paid $xx for a bed tax, but only part it is going to where it is supposed to go? Does everyone hate Murray so much that that they can't see the obvious?
01:50 PM
Pete says
Mikel,
Dun forget da Fed's want 35% of it too for Corporate Taxes
01:46 PM
mikel says
so mr murray let me get this straight. if i buy, lets say, a roto-tiller from sears for $80 (and paid sales tax on it) and find someone to buy it from me for $100 are you saying that i owe the state sales tax on that $20 profit?
12:52 PM
Pete says
HEY!!! You guys trolled a lawyer into making an 600+ word response! EXCELENT!!!!!!!!!!!!!!!
ibetwrittenbyaparalegal
12:11 PM
Salvatore says
It's about time a REAL legal expert got on here to add to the story or to post some comments to explain some things.
12:00 PM
Hmm says
What are you talking about? People sue companies they do business with all the time. And they certainly sue companies they USED TO DO business with. And where is the conflict? Travelocity is charging hotel guests a tax that they are not turning over to the country. Hotel owners don't want their customers charged this tax if it isn't going to the county.
11:54 AM
RealClassy says
Well, Mr. Murray my apologies, for my "incorrect" statement, however, you did in fact have ownership in at least 2 hotels in Ohio as far back as 2006 . Does Antares LTD L.C.C. ring a bell? Your hotels did in fact use these internet companies to sell rooms. And how is it not a conflict of interest to sue a company (companies) that you do business with? I may not be a lawyer, but it still doesnt seem right to sue a company that that puts revenue into your pocket. Maybe not now, but in the past!
11:32 AM
Hmm says
Seriously Digger, did you even read what he said? This lawsuit is necessary to right a wrong, and if they win it will mean more money for the county. Guests are paying the tax, but it isn't all going to the county. Some of it is going to the interenet company. Why are you insulting the attorney?
11:21 AM
digger nick says
You can always tell when an attorney is talking *hit. Their lips are moving. No wonder there are so many lawyer jokes out there.10:23 AM
John Murray says
10:11 AM
Salvatore says
Change the law to reflect the final payment for the room by the room's occupant. The laws are outdated now because of the internet.
09:51 AM
Hmm says
Change the law to what?
09:35 AM
Salvatore says
Many good comments here. Instead of a lawsuit, why not change the law to close up the loophole that the internet created? Why is Murray in this? If he wins, does he get a share of the winnings? Or does he get paid by the hour? Why outsource legal service if the county prosecutor is supposed to represent the county? Our tax dollars are being spent on outside attorneys. WHY? If internet companies like Travelcity buy blocks of rooms and then resell them, what happens to the rooms that Travelcity cannot sell and remain empty? Does Travelcity end up paying bed tax because it bought the room even though the room was empty? Change the law. Simple. So somebody tell me, how much will this lawsuit cost in legal fees? More than what will be collected in bed taxes?
09:03 AM
mikel says
just wondering why erie county is not using their legal counsel for this.
08:48 AM
Hmm says
I agree. The definition of the consumer is key. I think the intention of a bed tax is to cover "wear and tear" on the community from the hotel guest. It seems to me when I book a room via the internet, my invoice shows the bed tax as based on what I paid for the room. Therefore, that is what the county should get. But if the room doesn't get booked, no bed tax should be paid because there is no guest. Neither party can have it both ways. But I'm just an armchair attorney - what do I know!
08:42 AM
Boy with the Boot says
You are probably right, Hmm. The flat rate tax idea would be extremely difficult to apply to all those situations. I still think the law should be clarified to define who the consumer is. Many other cities have changed their laws written prior to the internet. This area should too.
07:55 AM
Hmm says
Boot Boy - how the heck do you define a flat rate for a room? Everyone staying at hotel pays a different rate. Rates vary depending on when you book (last minute is more expensive), where the room is, the time of year, the day of week, the length of stay....Its not really simple as you think. The courts will decide.
07:48 AM
looking around says
It's the art of the deal!
07:47 AM
Hmm says
The hotel owners aren't really impacted by this. Why should they quit selling to Travelocity? They sell blocks of room, cheap, to Travelocity. Its win/win. The courts just need to sort out the tax issue.
07:46 AM
Boy with the Boot says
Instead of long drawn out laswuits, the most direct way to deal with this issue is to change the law. One key point is to define who is the consumer. Is it the dot.com who actually rented the room or the tourist who shows up and uses the room? Another point is to define whether the room tax should be based on the price paid or a flat rate regardless of ultimate end user cost. If a motel/hotel/Inn has a standard room rate of $140 per nite but chooses to avoid the risk of having the room sit empty and contracts with a dot.com to rent the room for $80 per nite that is their choice. If Joe Tourist from out of state decides to visit Erie County and uses a dot.com to find a cheaper rate, say $100, that is his choice too. The municipality where the room is located should not have to take a wait and see approach on what tax rate to collect, however. A flat rate would simplify the issue down to the penny.
If the law were changed to specify a flat rate based on the standard room rate, then that that amount would be collected from the dot.com up front and then the dot.com would simply adjust their re-selling price accordingly. The bigger benefit to this change in the law would be to apply it across the board. That would mean it could apply to all kinds of other discounts such as AARP, military, corporate, and whatever else deviates from the standard room rate. Seasonal rate changes could be built in to the law so again there would be no discussion regarding the tax amount due.
In the time it likely will take for this lawsuit to ultimately go before the court after all the inevitable motions, briefs, delays, etc., the law could be changed and on the books. I wish Mr. Murray et. all the best of luck but I won't hold my breath waiting for the outcome.
07:45 AM
HughJass says
I dont think this is a case that they can win and is a waste of taxpayer money to fight. Murray says, "Ohio law says the bed tax is collected as a percentage of what the customer pays." Well, in this case the customer is hotels.com, expedia, etc. They paid $80 for the room. Just because they resell at $100 doesn't make them liable for the bed tax, unless the reseller is located in the community where the bed tax exists. Most of these companies are based out the state and some even out of the country. The only taxes they are legally liable for are those in the state or country they do business from because that is where the sales transaction actually takes place.
07:37 AM
Yellow Snow says
How much in tax money is generated for rooms not rented? If I were a local hotel owner, I would refuse to sell to Travelocity. That wouldn't take a lawsuit. Either that, or up your prices (they're all ready too high) and cut Travelocity out.
Pull the plug on Travelocity, play with fire, and get burned.
07:18 AM
William Jeffers... says
Looking forward to Murray's cross examination of the knome and Willaim Shatner.
07:17 AM
Captain Gutz says
If you think you can beat Captain Kirk, you better think again.
07:02 AM
Hmm says
Interesting. I wonder if the tax is paid on rooms that never get sold by the internet companies?
06:45 AM
goofus says
There has to be alot of money involved for Dewey, Cheatem, and Howe errr Murrays to get involved.
06:40 AM
trucker says
Oh my goodness.
I paid 1 dollar for a kids shirt clearance at ????. Which i paid 7cts tax. ???? orig $12, will turn around and claim the lost/profit was -minus $11. Tax write/off. While actually true cost around 20cts. making a profit of 80cts. The tax lost to gov. was 76 cts based on orig would have been 84cts profit. Now not to mention ???? profit tax lost , which in turn Makes a whopping 60 million+ a quarter, while claiming lost of so many cents a share. rusulting in no tax being paid. Kinda the same as i do in my small business.
Moral of story. does that mean stores need to stop having discounts sales. Will they be next. Force people to pay higher and eventually they will NEED new and pay higher which will result in higher tax revenue.. Think i am wrong look at many men who pay childsupport. Judge doesn't consider what a man makes current but what he "could" or "used" to make. Man goes out gets a second job, make more, charged more. Man realizes extra just isn't worth it. Quits, goes to bare minimum, he lose, kids lose, gov tax lost(less spending buying goods and services) But the fact is now more people are under the GOVERMENTS control.
So many loopholes out there. Endless battle, sue a company/ try and hide any profit from gov. all boils down to thinktanks sitting around trying to figuare out more tax rev, to keep there jobs safe. REDISTRIBUTION circle.
06:38 AM
RealClassy says
Mr.Murray, Isnt this a conflict of interest? You are part owner of at least 2 hotels, one in Hamilton County and one right here in Erie County. So do you still allow these companies to buy rooms from you????? You get the revenue from these companies then you turn around and sue them? Real Classy!!!!! I wonder if these companies know you are a property co-owner????