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FL TAX LITIGATION ALERT - Online Travel Companies Win in Orange County



In the never-ending national battle between the various counties and the Online Travel Companies (OTC's) over the Tourist Development Tax, the OTC's won the most recent battle in Orange County on June 22, 2012. Orange County and Martha O Haynie, Orange Couny Comptroller v. Expedia, Inc. and Orbitz, LLC, Case No. 2006-CA-2104 (9th Jud. Cir., June 22, 2012). Specifically, an Orange County Trial Court 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.

In his almost 40 page opinion, Judge Lauten acknowledges that at the laws inception, these types of internet businesses were obviously not contemplated. He weighed on one hand the language that states tax is due on "the consideration paid for occupancy" which seems to mean the gross amount received by Orbitz or the other OTC's. On the other hand the "total consideration for occupancy" could mean the amount received by the hotel for a room and a facilitation charge is not payment for occupancy. Similar competing views can also be raised for the issue of who is the "person" who "rents or leases" the room and whether tax be collected "at the time of payment" means the deposit charged by Orbitz or the final amount accepted by the hotel.

The court relied heavily on the well-established legal principal that ambiguities in a tax law shall be construed in favor of the taxpayer. It also opined that no possessory interest ever exists by the OTC and its role is a mere facilitator to put the hotel and customer together to achieve their objectives. Specifically the court stated:

Orbitz never takes title to any rooms; does not buy rooms from hotels in advance of its transactions with its customers; never receives itself a leasehold interest in any rooms from the hotels that in turn Orbitz sublets or assigns to its customers; never obtains a present right to occupy any rooms for itself or its employees; is not penalized or financially harmed for failing to "rent, lease or let" any rooms; does not suffer any economic loss of any sort (other than the obvious lost income for failing to engage in a business transaction) if it does not "rent, lease, or let" a room; does not select or control in any fashion which precise rooms are rented by the hotels to Orbitz's customers; does not register guests or establish check-in and check-out times and procedures; does not set the rules and procedures otherwise governing stays on the hotel's property as to matters such as available amenities and their uses, children, pets, parking and the ilk; and has no power to dispossess a hotel customer in favor of an Orbitz-referred customer in the event the hotel accepts too many reservations and thereby overbooks.

The court also relied on Broward County v. Fairfield Resorts, 946 So. 2d 1144 (Fla. 4th DCA 2006) in which a timeshare company allowed customers to purchase rooms for a specified time period. While the 4th DCA disagreed with the trial court, it acknowledged that the TDT statute does not include timeshare packages (that did not exist at the time the statute was drafted) and, therefore, the TDT tax is inapplicable.

Interestingly, the judge seemed to indicate that if drafted correctly the TDT ordinance could impose tax on the OTC's, however, as written the TDT does not subject to the OTC's to tax on its so-called "facilitating" or "assisting" fees that create the discrepancy. The court also gave an interesting history of the proposed and failed TDT bills that failed to become law since 2006, but gave the deserved deference to the Legislature to remedy this issue.

This case marks an important victory for the OTC's because this marks the second case in a row that came down in favor of the OTC's. Further, in a large tourist market like Orange County the tax at issue was likely substantial. On the losing side this year, Palm Beach County settled with the OTC's for around $1.9 million in Tourist Development Tax in February. For a more in depth analysis of the Palm Beach County settlement, please click on the link at the end of this article. 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, Florida Sales Tax Attorney, Jerry Donnini, FL OTC

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.


Orange County Comptroller v. Expedia, Inc. and Orbitz, LLC, Case No. 2006-CA-2104 (9th Jud. Cir., June 22, 2012) (Order granting Summary Judgment in favor of taxpayer).

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