FL TAX LITIGATION ALERT - Online Travel Companies Win In Broward County


Over the past six months, there has been significant action on the controversy front involving the Online Travel Companies (OTC's) challenging the Tourist Development Tax. Fresh off of a victory in Orange County on June 22, 2012, the OTC's were victorious again in Orbitz, LLC, et al. v. Broward County and Florida DOR, Case No. 2009-CA-126 (2d. Jud. Cir., July 13, 2012). Specifically, Judge Lewis, a Leon County Circuit Judge, concluded that tax was not due on the marked-up amount the OTC's, such as Expedia, Orbitz, and Travelocity, charge to their customers for hotel room rentals. [A copy of the order granting summary judgment in favor of the taxpayer is downloadable at the end of this article.]

Under section 125.0104, Florida Statutes ("F.S."), the Tourist Development Tax (a type of "bed tax") is due on the consideration paid for room occupancy within the county and a particular county may charge an additional amount in its discretion. The controversy at issue is whether the "consideration" the law speaks of is the total amount paid by the customer or the discounted amount charged to the OTC and passed through to the customer? The counties have successfully asserted in previous controversy that the "consideration" is the higher amount because that is what is charged to the customer for the room, whereas, the OTC's counters that they are mere "market facilitators" or "intermediaries" and the up-charge is for the OTC's services.

The issue can be more clearly explained using the following two examples:

Scenario 1: 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. Of the $13 approximately half goes to the county under the Tourist Development Tax regime.

Scenario 2: 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 $100, which includes a reimbursement for the $10.40 in tax and a $9.60 profit. On virtually the same transaction the state and local government collects $10.40 instead of the $13

While the small difference on a per room basis seems insignificant, the issue has put millions of dollars in tax revenue in jeopardy for the counties. In this case, the judge ruled in favor of the OTC's and stated the TDT is not due on the differential.

Relying on Judge Shelfer of the Second Circuit (Leon County) and heavily on Judge Lauten in Orange County, Judge Lewis found it unnecessary to discuss the issue in depth. Judge Lewis disagreed with the other opinions in that the OTCs acts as an agent for the hotels because there is a separate relationship between the hotel and the OTC, the OTC collects a minimum room rental fee to pay the hotel, and the parties agree the hotel will remit the appropriate taxes. Specifically he stated:

I am at a loss, however, to understand how or under what authority the OTCs can reserve a room at the hotel on behalf of a customer if the hotel has not authorized the OTC to speak and act on its behalf and to bind it in the same way an employee would bind the hotel if a consumer called the hotel directly to make a reservation. The scope of the agency may be rather narrow, but it is an agency relationship.

Like the cases in Leon and Orange County, this case marks an important victory for the OTC's because this marks the third consecutive victory that came down in favor of the OTC's. Perhaps, the recent direction of the courts will force the Legislature's hand and a law will be enacted to eliminate the current state of ambiguity. It will be interesting to follow these cases as at least one of the cases will likely be appealed. Until the Legislature acts, the only thing certain is that the law is largely uncertain in this area state and local tax law.

Moffa Gainor Sutton PA

About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., in Fort Lauderdale, Florida. Mr. Donnini's primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact the firm by phone or email via the links at the top of the page.


Orbitz, LLC, et al. v. Broward County and Florida DOR, Case No. 2009-CA-126 (2d. Jud. Cir., July 13, 2012). (Order granting Partial Summary Judgment in favor of taxpayer).

Article on Palm Beach County Tourist Development Tax settlement in February 2012.