Last week, the city of Duluth, Minnesota, filed a lawsuit against Expedia to recuperate sales tax on hotel room bookings, but if history is any guide, the legal battle may hinder more than help the city.
Duluth hoteliers are concerned that in winning this judgment they might lose out on the larger amount of money generated from online hotel bookings.
After the city of Columbus, Georgia, won a similar legal battle over local taxes, Expedia, Orbitz, and Travelocity stopped listing any hotels in the city and directed visitors to hotels in neighboring towns. Following a similar legal judgment in Lawrence County, Pennsylvania, Orbitz pulled all of the county’s online listings.
To date, more than 50 cities have filed similar lawsuits against Expedia; although only 18 of those cases have gone to court, 15 have resulted in victories for the travel companies.
Officials in Duluth are uncertain of the amount of sales tax Expedia owes them, but the lawsuit is seeking a full accounting of the city’s hotel business with Expedia.
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Duluth hotels and motels take in approximately $56 million annually. Only 5 percent of their business, about $2.8 million, is driven by online travel agencies.
Of that $2.8 million, 80 percent goes directly to the hotel and is taxed with the resulting 20 percent going back to the Web site as part of their fees. The untaxed 20 percent is the basis of this lawsuit, though experts say that Duluth only stands to earn about $36,400.
Expedia books hotels under the umbrella of Expedia.com, Hotels.com, Travelocity.com, and Hotwire.com.
In its legal response to the lawsuit, Expedia states that it has fulfilled its tax obligations because the reimbursements Expedia pays to the local hotels are taxed. At press time, representatives from Expedia have not responded to Peter Greenberg Worldwide’s request for comment.
Expedia’s legal woes go beyond the United States. This month, French tourism minister Frédéric Lefebvre announced that the French government will be joining the country’s hotel association, Synhorcat, in their lawsuit against Expedia’s Web sites.
This suit accuses Expedia of misidentifying hotels as “full,” incorrectly citing promotional prices, and of intentionally listing incorrect telephone numbers so that customers had to call Expedia’s central-reservation system rather than contact the hotel directly.
By Lily J. Kosner for PeterGreenberg.com.
Related Links: Duluth News-Tribune, The Republic, The Economist, TCB Magazine, Wall Street Journal, USA Today, Winona Daily News
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