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FLORIDA TAX LITIGATION - ONLINE TRAVEL COMPANIES - Hotel Room Rental or Reservation Facilitators


[Ongoing Florida case: Orange County, et. al. v. Expedia, Inc., Orbitz, LLC, and Orbitz, Inc., Case No. 48-2006-CA-2104-0 (Fla. 9th Cir., Jan. 20, 2011)]

controversy involving Online Travel Companies (OTC's) such as Expedia, Travelocity, and Orbitz, have been a hot-button issue in litigation across the country. The crux of the issue with OTCs is whether sales, bed tax, and/or other occupancy type of tax is due on the OTC's reduced rate for renting hotel rooms or if sales tax is due on the increased price the end-user pays. Additionally, the issue has arisen as to who is responsible for collecting/remitting the correct amount of the tax.

For example, suppose a customer books a room directly from a hotel for $100. At a typical 13% tax rate for various local taxes the customer pays $113. The hotel receives its $100 and the state collects $13 on the transaction.

Using the same example, an OTC purchases the same room from the hotel for $80. At a 13% rate, it pays tax of $10.40, for a total cost of $90.40. The OTC then charges the customer the same $113 (at a 25% mark-up) which includes a reimbursement for the $10.40 in tax and a $22.60 profit. On the same $113 transaction the state and local government collects $10.40 instead of the $13.

This "minor" discrepancy has led to over 80 cases nation-wide over the past couple of years and about 20 in Florida alone. Further, some estimates have the total lost revenue by state and local governments at about $400 million per year. In Florida, the brunt of the battle is being waged at the local level over the discretionary surtax.

A case ongoing in the Orlando Florida area right now is the atypical case for this topic: Orange County v. Expedia and Orbitz, Case No. 48-266-CA-2104 (Fla. 9th 2011) (there is a very informative Order Denying Plaintiff's Motion for Summary Judgement available to download at the end of this article). Relying on the Tourist Development Tax (TDT) in section 125.0104, Florida Statutes, the county claims the OTC is renting, leasing, or letting the room to the customer. Being that the OTC uses words like "the sale of hotel rooms" on its website, it is a "dealer" for purposes of the TDT and must collect and remit the tax. The OTC has countered by claiming it is merely marketplace facilitator and has no control over the rooms, therefore, is not renting or leasing any rooms.

For purposes of summary judgment, the Court in Orange County agreed with the OTC in that it was not the one actually renting or leasing the room. The Court looked to the ruling in County of Monroe v., Inc., No. 09-100004 (S.D. Fla., Dec 17, 2009), in which the court decided the taxpayer was not renting the room because it never took title or possession of the room. The Court also looked to Brevard County v., Inc., (M.D. Fla., Feb. 24, 2010), in which the federal judge looked to whether the OTC had a possessory interest in the room. The court concluded the OTC in this case was more like a marketplace for a customer and not engaged in renting or leasing the room for summary judgment purposes. It is also noteworthy that the Court stated in its opinion that the contracts between the hotel and the OTC stated the OTC did not buy, rent, or lease the rooms but rather facilitated reservations. The Court also discussed how the OTC's websites stated they were not providers of hotel rooms and the fee charged is for a facilitation service. While it is not dispositive it may be helpful for your business or your client to include such language to strengthen its position against collecting and remitting tax on such transactions.

While Expedia and Orbitz were successful at defending summary judgment in Orange County, Florida, the controversy across the country has been anything but consistent. OTCs have lost or settled in various counties throughout Florida. OTC's have had some success in courts located in Kentucky and North Carolina. On the other hand, state and local governments have had significant victories in Texas, Washington, Georgia, California, and South Carolina.

Until the various states provide legislation, the OTC controversy is largely unpredictable and it remains difficult to advise clients on how to handle their business. It would seem easy to recommend charging tax on the higher amount to avoid liability, but for most OTC's this means losing customers in a highly price competitive market. To complicate this matter even further, some OTC's purchase rooms for rent from other OTC's acting as a middleman. In these situations, the "retailer-OTC," for lack of a better term, may not even know what price its supplier purchased the room for or what amount of tax has already been paid. Normally, the OTC can defend on audit that at most the tax due is only on its mark-up but under this scenario the OTC may have an increased exposure because it cannot even prove the amount of tax already paid. However, the OTC should be wary until the issue is resolved because the state revenue agencies will come after the OTC for taxes not collected years after the transactions have taken place, which will eat into an already thin profit margin business. It will be interesting to say the least on how this litigation plays out, more to come.

For more information on this issue please do not hesitate to fill out a case evaluation form, call us at 888-444-9568, or contact me directly at


Florida Statute Sec. 125.0104

[ongoing case] Orange County, et. al. v. Expedia, Inc., Orbitz, LLC, and Orbitz, Inc., Case No. 48-2006-CA-2104-0 (Fla. 9th Cir., Jan. 20, 2011) (Order denying Plaintiff's Motion for Summary Judgment).

County of Monroe v., Inc., Case No. 4:09-10004-KMM (S.D. Fla., Dec 17, 2009)

Brevard County v., Inc., Case No. 6:09-cv-1695-Orl-31KRS (M.D. Fla., Feb. 24, 2010)